10 Warning Signs Of A Dangerous Stock Market

By Attain Alternative Blog

While many investors may be breathing a sigh of relief thanks to the bounce off the February low, with the S&P up 11% since the start of February – it’s still not all lollipops and rainbows out there in market-land. There’s some worrying undercurrents that could spell more trouble ahead, not to mention pros like Jeff Gundlach claiming there’s just 2% of upside in the S&P 500 and 20% downside.

Just what’s on the mind of some of the sharpest investment managers out there?We were lucky enough to have Mike Melissinos of Melissinos Trading send along a collection of charts and indicators he’s been looking at with a worried eye, and thought it was worth sharing here. Enjoy…

I’m sure a lot of you have noticed the weakness in the stock market lately. If you’re wondering whether this is a short-term dip within the bull market or the start of a larger bear market, I’d like to provide you with some information that may help you decide. See the charts below.

I do not use any of the charts or information below to make investment decisions. I base all of my trade decisions on the price trends of the markets within my portfolio.

I understand that not everyone employs this price-only style, but instead prefer to base decisions off of fundamentals. They believe the fundamentals give them a better idea of the stock market’s health. The charts below mostly fall into the “fundamentals” category, so for you fundamental guys and gals, these charts may help you.

For the record: my firm holds short positions in several stock markets including the S&P 500, Nasdaq 100, Hang Seng (Hong Kong), IBEX 35 (Spain) and MSCI Emerging Markets Index.

 Dangerous Stock Market – Decline in Profit Margins

When margins shrink, business activity contracts. Businesses cut budgets and jobs. Recessions typically follow. Stock prices tend to fall more than 10% in recessions.