In a blog that I wrote on April 13, I urged investors to get out of stocks because my models had indicated that equity prices would soon peak and then pull back sharply during the ensuing weeks.
Eight days later (on April 23), the major stock market indices did peak, and they pulled back considerably during the past three weeks, with the S&P 500 Index falling 6.6 percent and the Nasdaq Composite Index declining 7.0 percent from April 23 through yesterday’s close.
Meanwhile, an increasing number of technical and fundamental factors suggest that stocks are in danger of falling further within the next few weeks.
For example, the number of stocks that have traded at new 52-week highs less those that have traded at new 52-week lows fell last week to the lowest level since July 2009.
Meanwhile, the percentage of stocks that have closed above their long-term (200-day) moving average trended lower during the past four weeks. Those statistics indicate that the demand for stocks has fallen considerably since mid-April.
Separately, institutional investors, who account for approximately 80 percent of all trading activity in the financial markets, have consistently reduced their exposure to stocks since the beginning of this year.
In addition, those investors increased their allocations to defensive sectors of the equities market during April.
Of utmost importance, all of the major stock market indices have failed to break up through their prior price-support levels and those indices have traded at lower highs since April 26. That type of trading action has historically been a precursor to lower stock prices.
Meanwhile, some recently released economic statistics suggests that the U.S. economy might grow at a slower pace during the second half of this year than it did during the past few months.
For example, the Federal Reserve of New York announced yesterday that manufacturing activity in the tri-state are of New York, New Jersey and Connecticut slowed considerably during April while the U.S. Department of Commerce reported this morning that building permits for the construction of new homes fell sharply last month.
In light of the developments mentioned above, I urge you to ignore the so-called Wall Street “experts,” most of who have been advising investors, in usual fashion, to add to their stock holdings.
If you’d like to learn more about my analysis of the financial markets, and ways to profit during both up and down markets, I urge you to try a free trial of my investment advisory service, The ETF Strategist.
As of yesterday’s close, my Conservative Portfolio recommendations had outperformed the S&P 500 Index by 31 percentage points while my Aggressive Portfolio recommendations had beat the S&P 500 by 56 percentage points.
About the Author: David Frazier
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