Is Wall Street Due for a Downturn?

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.