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Sentiment, Chart Signal Suggest a Stalling S&P 500

NEW YORK ( TheStreet) -- This week's downside moves in the S&P 500 have been some of the biggest since June, as a series of earnings miss-steps and important chart analysis signals indicate market sentiment has reached an exhaustion point, and that we are in store for a period of downside correction.

In earnings forecasts, some of the latest disappointments include weaker results at Wal-Mart (WMT) and Cisco (CSCO). When we factor in the majority expectation that the Federal Reserve is prepared to start phasing-out its monetary stimulus injections, prospects for equities start to look more bleak, given the lack of fundamental drivers in place to drive stock prices higher.

So, while this does not mean equity values have reached a long-term top, it does suggest a period of stalling.

Steady improvements in macroeconomic data have led to higher bond yields as the current environment of zero-interest rates now has a more definite conclusion point. Treasury yields are now seen at their highest levels in two years and each of the 10 industry groups in the S&P 500 have shown weakness in this latest move lower.

Earnings disappointments, the prospect of higher interest rates, and stalling growth in emerging markets limit prospects going forward, and should give investors an early signal that bullish momentum will start to slow.

Economic Data

Evidence of this slowing momentum can be seen from a chart perspective as well, and I will address some key pattern signals showing this at the end of this article. But, fundamentally, jobless claims have eased Fed concerns for the labor market (lowest levels in six years), inflationary pressures are starting to build (cost of living has increased for three straight months), and generalized pricing pressures are moving towards the Fed's target levels.

At the moment, we are seeing a market environment where improving macro data is being interpreted as a potential negative. When we view this tendency in sentiment alongside other potential negatives, it makes sense to consider taking profits when the SPDR S&P 500 ETF Trust (SPY) is making short-term rallies.

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