This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Stock Market: Technical Indicators Are Flashing Red

By Michael Arold

May 2013 was a month that investors might mark in their calendars: around that time, US interest rates started to rise sharply. Since then, the 10-year yield moved from 1.7 percent to 2.8 percent. That’s a 60 percent increase.

In May, most global equity markets started to turn south as well: Emerging markets, represented by the iShares MSCI Emerging Markets ETF (EEM), Asian and European stocks such as the iShares MSCI Pacific ex-Japan (EPP) and iShares MSCI EAFE (EFA) peaked.

US equities, however, have so far ignored the rise in interest rates. Granted, technical cracks emerged, but US stocks are still trending up. Regarding equities, America is the “last man standing.” Yet, I would be cautious.

Although the S&P 500 Index (SPX) declined around five percent in recent weeks, sentiment is still too optimistic: normally, there should be much more trading going on in equity put options. The “put/call ratio” traded on average around 0.6 during the last days of August. That’s a low number, compared to earlier pullbacks.

More and more US sectors have been acting extremely weak. Take housing for example. The earliest victim of the current interest rate environment. There are still a few strong stocks out there and I’m long in some of them.

However, leaders decline last and I will close long positions quickly since this is not a strong market. When momentum stocks fall out of favor, they can fall really hard.

Is Syria really the trigger for this? I don’t think so. If Mr. Market wants to go down, he will go down and find a reason to justify the move. There has been weakness before Syria: market breadth, the number of companies advancing relative to those declining, decreased while the S&P marked new highs at the beginning of August.

I’m a trader and I usually do not hope for certain developments to take place. Hope is not a business model. But these days, I actually hope that we have not seen the highs of 2013: retail investors just started to get back into the markets and after the Financial Crisis, they shouldn’t get hurt so soon again. On the other hand, that’s how markets have often worked: the small guy was the last one to buy.

The investments discussed are held in client accounts as of August 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

Michael Arold

Michael Arold

I am a technical trader and an aerospace engineer with more than 15 years of investing and trading experience. My

null

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 18,070.40 +46.34 0.26%
S&P 500 2,114.49 +6.20 0.29%
NASDAQ 5,016.9290 +11.5380 0.23%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs