A Suicide Shot

What’s a suicide shot you ask? - Squirt a lime in your eye, snort a line of salt then finish it off with a shot of 180 proof alcohol. Sounds like a killer time, eh?  You’re likely not going to die but there will be a lot of pain with little upside (other than your friends can laugh at your foolish escapades). This sounds as much fun to me as investing in the US stock market right now.

While the markets (and my opinion of them) can change on a dime, I wanted to show you 4 charts, 3 different US stock sectors and one of the SP500 as examples of what I am seeing and why I am so sour to committing investment capital to the long side at this time.

The first chart is that of the US small cap proxy, IWM. You can see for the last year it has formed a series of lower highs and lower lows and the red 200 day moving average has a negative slope. In addition, a head and shoulders (red) top has formed but yet to trigger as price still remains above the blue neckline. A break of the neckline and I think cascade lower and challenge the Feb lows.

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We all know that a healthy stock market requires a healthy banking sector so it’s always good to take its pulse.  The banking sector looks very similar to the small caps as we have a series of lower highs and lower lows combined with a downward sloping 200 day moving average. And, while I do not show it (in an attempt to keep the charts as clean as possible) the most recent April peak has formed overbought negative RSI momentum divergence.

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My next chart is that of the Nasdaq 100, QQQ, a proxy for large cap technology stocks. The 200 day moving average has been flat for months but just recently started to slope downward. A huge head and shoulders topping pattern (blue) has been forming since August of last year. In addition, notice how the right shoulder of the bigger pattern has formed its own mini (red) head and shoulders pattern. While neither has broken their respective necklines, this is an extremely bearish setup and portends of lower prices. The one upside and difference from the other charts above is that we have not formed a series (at least 2) lower highs and lows yet as we have had only one lower high (back in April) combined with two lower lows.

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My final chart is that of the SP500. This chart should look familiar as it shows a series of lower highs and lower lows combined with the 200 day moving average sloping slightly south. Also, the most recent consolidation from late March to present has formed a symmetrical head and shoulders topping pattern.

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The market feels real heavy here and I feel is looking for a catalyst … in either direction.  Any daily rally that hasn’t reversed and turned red have been weak and the sectors you want to be leading, aren’t. My $.02 is if the bulls cannot take control and push this broader market to all-time highs soon, the bears will take it lower and make a run at forming the next lower low. Putting that aside, this week being OP-EX (option expiration) tend to be pretty bullish so if they bears were to grab the market, in spite of the ominous looking charts, I expect some patience will be needed.