Expect Rougher Times Ahead For US Stock Markets

Yesterday and last evening, many here were questioning my sanity. The morning headlines, however, are shouting “Global Sell-off”. Yes, international equities and commodities are falling hard.

I stated that on Friday’s trading, it was obvious that the ‘buy the dips’ strategy wasn’t working. We had just bought a number of stocks and were scrambling to find any strength to sell into. Then, in Sunday’s Week In Review, I stated that my associate Pierre Brodeur, who is a market timing expert:

“is a little more than cautious. He wrote as follows:
Based on Friday’s close:

My intermediary trend indicator flattened and dropped Friday confirming that one should expect rougher times ahead as the Dow Jones begins a healthy correction back to longer term benchmarks. The ultimate worse case scenario projection would be between increasing MA200 at 8312 or so and increasing MA100 at 8475. The most likely scenario would be a pullback to the previous top of 8878 and rising MA50 at 8766 which should be near 8878 given the time span of a pullback.

Our risk measures for the US market are all pointing to extreme caution:

-1- NYSE Bullish % reached 80%. Any value above 70% is overbought and a sign for me to lighten longs. A reversal back to 74% would confirm a lengty enough pullback to initiate short positions.

-2- S&P500 Bullish % is also at 80%

-3- The NASDAQ Bullish % is now at an unsustainable 90%

-4- The Dow Jones Bullish % is at 86%

-5- The TSX Bullish % is entering the overbought zone at only 70%.”

Throughout the WIR, I stated the warning signs. One of them was that there has been a significant divergence between RSI-7 and share prices even though the RSI’s were at extremely high levels. I stated that RSI-7’s on the Daily had dropped below 70 and that was looking like it would happen to the Weeklies. It was happening across the board.

I added to the other potential shocks that could hit the market could be the one that small US banks might soon have to stand in line at the bankruptcy court, and that banks with money to lend were not doing it, and that credit card companies were dropping the credit limits. These are not positive signs. I didn’t stop there.

In the market, one never knows. But, Joe Granville taught us about the weight of the evidence, and the load has been becoming a burden. Even the Fed doesn’t know where to turn at this point.

If you are long, try to have a good day. I’ll be busy trading. Thankfully we are net short non-gold equities.

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