Financial Author Sincere: 4 Signals That Bull Market Is Vulnerable

Monday, 18 Aug 2014 12:02 PM

By Dan Weil

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Some stock market participants worry that the five-year bull market, which has seen the S&P 500 jump 191 percent, may be on its last legs.

Financial author Michael Sincere is one of them. He cites four warnings signals in a column for MarketWatch.

1. "Rallies fizzle quickly." The market's rebound since last Thursday has been accompanied by low trading volume. And such rallies generally don't last, Sincere notes.

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"Hint: Big rallies are common as the market transitions from a bull to a bear market. In fact, during a bear market, monster rallies are not surprising, but what happens next is important. For example, a strong rally that reverses direction intraday is a highly bearish signal," he explains

2. "The market breaks key technical levels." If the Dow Jones Industrial Average drops below 16,354, its 200-day moving average, or the S&P 500 falls beneath 1,900, stocks could be in trouble, Sincere argues. The former stood at 16,824 Monday morning, and the latter at 1,971.

3. "Breadth indicators show major price divergences." While the overall market is rising, fewer individual stocks are hitting 52-week highs. That's another sign of danger, he states.

4. "Sentiment indicators reflect complacency. Even with the recent selloff, financial writers are extremely bullish," he writes. However, even though retail investors are turning less bullish, it appears they aren't selling, Sincere contends.

"Because the market doesn't go down in a straight line, . . . the ending could play out for weeks or months."

Venture capital luminary Roger McNamee, managing partner of Elevation Partners, is worried about stocks too. He notes that geopolitical trouble abounds. "There is a lot of chaos in the world, and that just makes me incredibly nervous," he tells CNBC.

"I don't understand how you can have so much chaos and still have prices going up every day. . . . It doesn't change how I feel about individual stocks. It does change how much exposure to the market I want to have."

Editor’s Note: Get These 4 Stocks Before 399% Stock Market Rally!

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