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Show This Chart to Your Bullish Friends

By Jeff Clark, editor, Stansberry Research Pro Trader
Thursday, December 5, 2013

It's hard to be bearish in December.
 
This is the time of good cheer, dancing sugar plums, and brandy-spiked eggnog. It's also the time of rising stock markets.
 
More so than any other month of the year, December has a bullish bias. Going back to 1950, stocks showed gains in December 47 out of 63 years. That's 74% of the time. If we only go back to 1970, the bulls are 35 for 43 – an 81% win rate.
 
So like I said, it's tough to be bearish during this time of year. But it's also tough to overlook this...
 
The daily chart of the S&P 500 below shows the index breaking down from a bearish rising-wedge pattern.
 
daily S&P 500 chart bearish pattern
 
Previous breakdowns in May and August led to modest 6% and 4.4% pullbacks, respectively, over the following month. Something similar this time around would set a target for the index somewhere between 1,740 and 1,700.
 
Yesterday, the S&P 500 tested its first red support line at about 1,780. After falling for four straight days, stocks are oversold enough that they could bounce from this level over the short term.
 
However, any bounce that fails to rally the S&P 500 to a new all-time high above 1,813 will form a "lower high" on the chart. That's a reversal pattern, and it increases the chances the next decline will take out support at 1,780 and spark a move toward one of the lower support lines.
 
So go ahead and be cheery. Be merry and full of goodwill. And be bullish if you like. But be careful, too. Given the look of this chart, stocks have more downside.
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

Earlier this week, Jeff revealed another reason for caution: One specific thing happened within months of every single market peak of the last 41 years. And it might be happening again right now. Get all the details here.
 
One of the stock market's most reliable indicators is also pointing to a reversal. "We now have a broad stock market sell signal," Jeff writes. "And the first sign that at least a short-term top may be in place." See the chart right here.

In The Daily Crux
Market Notes
Natural gas prices are sitting at a six-month high.
 
Financial sector fund XLF soars 36% over the past year.
 
Brazil stock rally takes a break... big country fund EWZ hits a three-month low.
 
"Bad to less bad" rally sends U.S. Steel up 46% in three months.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1792.81 -0.1% +27.4%
Oil (USO) 34.88 +1.1% +7.7%
Gold (GLD) 119.96 +1.7% -27.0%
Silver (SLV) 19.00 +3.2% -40.4%
U.S. Dollar 80.61 +0.0% +1.2%
Euro 1.36 +0.1% +3.9%
Volatility (^VIX) 14.70 +1.0% -14.1%
Gold Stocks (^HUI) 198.11 +2.2% -55.1%
10-Year Yield 2.84 +2.2% +76.4%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 179.73 0.0% +30.0%
Japan (EWJ) 11.89 -0.8% +29.8%
Israel (ISL) 16.59 +0.0% +27.4%
China (FXI) 39.64 +0.5% +10.2%
Taiwan (EWT) 14.32 +0.4% +7.8%
Russia (TRF) 14.95 -1.1% +7.0%
S. Korea (EWY) 62.70 -0.9% +5.8%
Canada (EWC) 28.59 -0.4% +3.5%
Singapore (EWS) 13.42 -0.7% +2.3%
India (IFN) 20.32 +1.0% -0.4%
S. Africa (EZA) 60.43 -1.1% -5.1%
Lat.America (ILF) 36.70 -0.4% -8.9%

Sector ETFs
Symbol Price
Change
52-Wk
Alt. Energy (PBW) 6.31 +0.5% +68.2%
Biotech (PBE) 36.99 -0.6% +59.7%
Media (PBS) 24.66 -0.2% +53.2%
Defense (PPA) 29.55 -0.4% +47.4%
Transportation (IYT) 127.95 -0.4% +43.1%
Health Care (IYH) 114.84 -0.3% +38.4%
Consumer Svcs (IYC) 117.87 -0.3% +37.8%
Industrials (IYJ) 96.21 -0.4% +36.7%
Retail (PMR) 34.16 -1.6% +36.3%
Financials (IYF) 78.04 +0.3% +35.3%
Big Tech (QQQQ) 85.49 +0.1% +32.1%
Semis (PSI) 17.94 -0.2% +29.4%
Software (PSJ) 34.18 -0.5% +28.5%
Construction (PKB) 20.73 -1.0% +24.0%
Nanotech (PXN) 7.06 +0.6% +23.9%
Telecom (IYZ) 28.31 -0.1% +22.5%
Water (PHO) 24.68 -0.7% +22.3%
Basic Mat (IYM) 77.65 +0.5% +19.9%
Insurance (PIC) 19.01 +0.1% +18.3%
Utilities (XLU) 38.23 +0.5% +13.9%
Real Estate (IYR) 62.84 +0.2% +2.6%

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