This Friday past, the Dow Jones Industrial Average and the S&P 500 both broke below their 200-day moving average. Meanwhile, the NASDAQ is close to its low for the year.
Given what my technical indicators are telling me, the stock market could be on the verge of a major breakdown. But I would also like to preface this with the caveat that the market is severely oversold and I would not be surprised to see an immediate-term rally from these oversold conditions. If the market does not deliver on the rally, then the stock market could be “sicker” than I think.
Why is the market tanking:
— The stock market knows the economy is not delivering the strong economic growth we’ve been led to believe by the popular media.
— Deflation is a threat that never really went away. Consumer prices are declining, the stock market is declining, the bond market is telling us inflation is not a threat, and the only items inflating over the past couple of years have been home prices and oil.
— Consumer spending could be on the decline because consumers are simply tapped out. In fact, of the 25 biggest retail stocks on the stock market, only one was up on Friday — 24 were down! The retail stocks are telling us trouble is ahead.
— Debt is out of control, more so at the consumer and government level.
I’ll be writing important commentaries on all the above topics in the next few days. In the meantime, I wanted to get this “Investors Beware” commentary out to my readers on a timely basis. My concern deals with the narrow trading range in the stock market that is about to be broken on the downside.