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Color Me More Concerned

Given these concerns, if the markets continue to advance, it might be an ideal time to cull out poor-performing stocks or companies that face earnings challenges in a disappointing and decelerating domestic economy.

Now, let's move on to a technical observation.

A famous Woody Allen quote -- used by Warren Buffett previously in his annual report and letter to Berkshire Hathaway (BRK.A)/ (BRK.B) shareholders -- has some bearing on our analysis of the markets: "Bisexuality immediately doubles your chances for a date on Saturday night."

In other words, embracing both fundamentals and technicals can have its benefits.

Earlier this year, I raised the issue that an unusually negative technical formation, "Three Peaks and a Domed House," might have indicated that an important market top was being made in March-April 2011.

This observation, which caught a number of technically inclined analysts by surprise, with the benefit of hindsight, might have been prescient.

Technical analyst George Lindsay coined this 23-step "Three Peaks and a Domed" technical pattern and gained celebrity because it pointed to a market peak in late 1968 -- and the largest stock market correction since World War II followed in the years after. (Here are some historic examples of such a technical setup.)

Below is a chart of S&P 500 cash year-to-date.

Observe the similarity between the chart above and George Lindsay's "Three Peaks and the Domed House" technical configuration below (with points 3, 5, 7 and 9 corresponding to the S&P's March-April 2011 price action).

Err on the side of conservatism in these uncertain (and market volatile) times.

Doug Kass writes daily for Real Money Pro, a premium service from TheStreet. For a free trial to Real Money Pro and exclusive access to Mr. Kass's daily trades and market commentary, please click here.

At the time of publication, Kass and/or his funds were long AXP and BRK.B, although holdings can change at any time.

Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

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