SuttonWatch.Net: U.S. Stock Market: A Broken Clock Is Right Twice A Day

Saturday, August 2, 2014

U.S. Stock Market: A Broken Clock Is Right Twice A Day

The following headline was posted on Reuters yesterday afternoon: "Despite sharp selloff, too early to worry about correction". After the worst week in more than two years (since June 2012), this headline and the related storyline are nothing short of astounding to me. If last week's decline is not a worry, then when should we worry?

I've been negative on the U.S. stock market for quite some time now, and I recently stepped up my bearish rhetoric in this column with the backing of key sell signals triggered this past month by my computer trading system. A quick review of my recent columns might be worthy of your attention. A monthly chart sell signal was triggered in mid-July in the Russell 2000 Index for the first time since July 2007 (the exact top of the 2002 - 2007 bull market). Monthly chart signals are rarely triggered in my computer trading system, but they are the most reliable as compared to daily and weekly chart signals.

While I don't consider myself a "perma-bear" by any measure, I clearly underestimated the staying power of the 2009 - 2014 bull market. Credibility is a fragile commodity in the investment advisory business, and I sincerely hope that my correct call on last week's steep decline is not viewed by readers in the same vane as the proverbial "broken clock that is right twice a day".

With last week's 467-point decline in the Dow Jones Industrial Average (-2.75%), this venerable index is now actually down on the year (0.50%). And the Russell 2000 Index is down 4.19% on the year so far!

The S&P 500 Index fell 2.69% last week, but it's still up 4.15% on the year. And the NY Composite Index fell 2.67% last week, but it's still up 2.81% this year so far.

However, monthly chart sell signals were triggered by my computer system last week in both the S&P 500 Index and the NY Composite Index (see charts below). Monthly chart sell signals were also triggered the following indexes: DJIA, DJTA, OEX, OSX, and SOX. And among major stocks, monthly chart sell signals were triggered in AXP, CAT, CLX, KO, CL, CMCSA, XOM, F, FWLT, GT, HON, IP, JNJ, KMB, LLY, MMM, NFLX, NVX, PCAR, PEP MO, QCOM, UPS, VIA, and WY, among others.

Bottom Line: Not only should stock investors be worried, they should probably start selling before it's too late! A major stock market correction is now underway.