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The Scariest Chart You'll See This Week

By Jeff Clark
Thursday, April 15, 2010

This is it.
 
I promise, this is the last bearish commentary I'll write until the market finally decides it's time to turn lower. It shouldn't be too long from now. Take a look at this 60-minute chart of the S&P 500...
 
 
 
The S&P 500 is tracing out a bearish rising-wedge pattern, similar to what happened back in December and early January. The small wedge in January was accompanied by a series of lower highs in the Moving Average Convergence Divergence (MACD) indicator. The MACD measures momentum. And that negative divergence was a strong warning sign the chart was ready to break the wedge pattern to the downside.
 
I warned you about this pattern (here and here) as it was developing. When the market finally broke down, it wiped out four months of gains in just a few days.
 
Today's rising-wedge formation is much larger and far more exaggerated than what we saw in January. And the negative divergence on the MACD is much more pronounced. So we're likely headed toward a correction that is deeper and more painful than what we experienced in January. In fact, if this chart breaks through the support line of the rising wedge, the S&P 500 could give up all the gains since early February – roughly 165 points – faster than you can scream "SELL!"
 
By itself, this chart formation is enough to justify a cautious or bearish stance. Taken together with all of the bearish indicators I've written about over the past few weeks (like the new low for the VIX), this chart is downright scary.
 
At the very least, it makes sense to establish some bearish positions in order to hedge against a significant decline in the stock market.
 
OK, that's it. I promise I'll write something else next Tuesday.
 
Best regards and good trading,
 
Jeff Clark




In The Daily Crux
Market Notes
Big railroads rally... CSX, Norfolk Southern, and Union Pacific make new highs.
 
Intel soars to fresh high... semiconductor giant surges 10% in a month.
 
New highs for U.S. banks B of A, JPMorgan Chase, and Wells Fargo.
 
Earnings today... AMD, Intuitive Surgical, Google.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%