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Hussman: Technical Dangers Abound for Stock Market

By Dan Weil   |   Tuesday, 08 Jun 2010 08:53 AM

Many experts say U.S. stocks are in trouble thanks to the European debt crisis and our own financial woes.

But the technical indicators are just as bad, says John Hussman, manager of Hussman Strategic Total Return Fund.

“Over the last several months, the market has been characterized by an overvalued, overbought, over-bullish syndrome,” he says.

That syndrome generally sees the market climb less and less to new highs, followed by an abrupt downward break, he told Bloomberg.

“That’s exactly what we’ve seen in recent weeks,” Hussman said.

Indeed, the Dow Jones industrial average dropped 7.9 percent last month, the worst May in 70 years.

Hussman sees other negative factors too. Declining stocks outnumbered advancers by 10 to 1 during a recent week.

The number of stocks reaching new lows exceeds those hitting new highs for the first time in nine months, he says.

“We’ve seen a strong deterioration in market internals.”

Hussman and his colleagues looked back in history, finding about 19 instances of this. “Only about four of them ended with a benign outcome,” he said.

“The rest were associated with an average decline of 7 percent over the next 12 weeks in the S&P 500, which expanded to 20 percent over the next 12 months.”

Not everyone views the technicals as bearish.

“What we’ve seen over the last few weeks is a routine pullback within the ongoing bull market," Puru Saxena, head of Puru Saxena Wealth Management, told CNBC.

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Many experts say U.S. stocks are in trouble thanks to the European debt crisis and our own financial woes. But the technical indicators are just as bad, says John Hussman, manager of Hussman Strategic Total Return Fund. Over the last several months, the market has been...
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