In the past week or so, I’ve become a lot more pessimistic about the market. I think the wall of worry has been climbed, and instead there’s a relentless march forward regardless of what news comes out.
Trust me, I don’t think of myself as a Debbie Downer, but I wanted to show you three distinct warning signs I watch:
1. The market itself. Here you see a dangerous chart formation: an ascending triangle, but on declining volume. The typical resolution to this is a dramatic drop down.
2. Is the market overbought? Here I look the percentage of stocks above their 40-day moving average. A sign of a top? When that percentage exceeds 70%.
3. The last clue: how are my stocks doing? Typically in a strong bull market nearly everything goes up. In a market that may be topping, my usual suspects invariably fail to gain much ground. That’s certainly the case with Coke (NYSE:KO).
Now, all this being said, I may well be wrong. Or early. Keep in mind, I’m still 100% invested. But, also keep in mind I’m usually 200% invested if I think the market has legs.