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Daily Gains Letter (www.DailyGainsLetter.com), an e-letter published by Lombardi Publishing Corporation, a 26-year-old consumer publisher that has served over one million customers in 141 countries, warns that technical patterns point to near-term downturns on the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite Index.For much of the past year, the S&P 500, Dow Jones, and NASDAQ have been enjoying massive gains in spite of weak underlying fundamentals and negative second- and third-quarter earnings guidance. For stock market bears, says Daily Gains Letter, these diverging indicators suggested the markets would decline in the fall on low volume. Stock market bulls, on the other hand insisted that solid earnings would entice investor buying, sending the markets higher. (Source: “New components will result in lower expected earnings growth for the DJIA,” FactSet.com, September 20, 2013; http://www.factset.com/insight/2013/9/earningsinsight_9.20.13#.UkHeloZ6ba8.)
“From a technical point of view, there’s a particular pattern forming that’s not really talked about in the mainstream called the ‘rising wedge,’” warns Daily Gains Letter financial analyst Moe Zulfiqar in regards to the S&P 500’s recent all-time high. “According to technical analysts, this is considered a reversal pattern, meaning that it suggests the prices will turn in the opposite direction and head lower from their current higher standing.” (Source: “^GSPC Basic Chart,” Yahoo! Finance, September 27, 2013; http://finance.yahoo.com/q/bc?s=%5EGSPC+Basic+Chart.)
Zulfiqar observes that some of the indicators of the rising wedge pattern include the slowing rate of increase (gains and losses are smaller over time), the ideal three resistances on the upper trend line, the presence of at least two supports on the lower trend line, and the volume declining as the pattern emerges.
“The fundamentals of key stock indices aren’t getting any rosier,” Zulfiqar contends. “Companies are warning about their earnings, the economy is growing slowly, the unemployment rate continues to be staggering, and a record number of Americans are on food stamps.”
On top of that, the markets have erased the gains made immediately after the Federal Reserve announced it would continue its $85.0 billion per month bond buying program on September 18. This suggests investors understand that the Federal Reserve will eventually taper its quantitative easing strategy and, as a result, are selling based on any strength they see on the key stock indices. (Source: Zulfiqar, M., “Should You Prepare for a Downturn in Key Stock Indices?” Daily Gains Letter September 26, 2013.)
“As I see it, the key stock indices seem to be facing troubles ahead, but you have to keep in mind that markets can also act very irrationally at times,” Zulfiqar concludes. “Is this one of those times? Based on what I have seen in the past, once the confidence starts to fade away, the key stock indices may head lower, only to pick up speed very quickly.”
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation and Daily Gains Letter, visit www.lombardipublishing.com.
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