More Signs Of Market Weakness Are Showing Up!

One thing I love about charting is that it leaves clues of what investors are doing, and not what they're saying.

You'd think that these would be one and the same, but I've found that they're not. Large institutions don't want to let you on to what they know and what they're in light of their information. They position themselves, moving millions of shares in or out of a stock or market and then LATER come out and tell you their new revelations so that you can come in behind their positions and push them up by your own buying.

It's why analyst upgrades and downgrades mean nothing to me. All of the information you're told by them will always come way too late, in my opinion.

Many investment houses may want to take on positions first or at least they'll want to get their big-money folks into something first, long before they're ever going to go out and announce it to non-paying customers, aka the general public.

But if you watch closely, you can see what they're doing by the traces they leave on the charts. For instance, a couple of weeks ago, I pointed out some of these signs.

And the Russell 2000 and Dow Jones Transportation Average have continued to head lower overall ever since. Now, there are even more signs I want to talk to you about, which are very bearish for the overall stock market.

For instance, yesterday I noticed the major averages (Dow Jones Industrial Average, S&P 500 and NASDAQ) all gapped lower. However, its really surprising when an index full of 500 large cap companies gaps lower on its chart. These instances are rare. It happened only once more in the past year, back in May...and then it was much closer to its major moving averages.

But this time, it's really worth noting because this gap lower comes after uber-bullish sentiment that's driven this index FAR above its major moving averages.

This gap shows that lots of large institutions all hit the sell button around the same time. It also shows that market-makers, which make markets in stocks (which determine the bid/ask prices that are the quoted prices at which you can buy/sell) were much lower too because as they were trying to "make a market" in these stocks, the buying demand would only come in much lower than the previous day's trading. So they had to start off the market much lower.

So you've got massive selling coupled with cautious buyers that aren't as willing to buy at as high of prices. Both of these are very bad signs for the market and they show up on the chart as a gap lower. Not all gaps lower are necessarily bad. But when they're far above their major moving averages and towards the end of a wave 5 uptrend, it's worth paying a TON of attention to.

Also, notice the MACD sell signal and the MACD's histogram (blue bars) which are dying off very quickly. These are both very bad signs and show that the stock market is primed for its next major move downward.

The Dow Jones Transportation Average just broke a steep uptrend line on HUGE selling volume with a declining RSI and a MACD sell signal. So this is still an ugly picture that just got uglier!

The same continues for the Russell 2000 Small Cap Index (smaller publicly traded companies). See below.

Even stocks that are traditionally defensive, like utility stocks...they're looking awful too! Trend line break...moving below the major moving averages, with the bearish "death cross" where the 50-day moving average crosses below the 200-day moving average...with enormous selling volume and a consistently declining RSI. Not good!

So the market will speak to us and we can see what the "big boys" are doing long before they admit up to long as we're looking for it on the charts.

Therefore, beware! These large institutions are rotating out of overvalued stocks and more into cash (as much as they're allowed to, which isn't much % wise) and into the very few pockets of value out there (which are the areas we're in, in the Logical Investor newsletter).

There's never been a better time to hold unusually large amounts of cash in your brokerage account and to sell any overvalued stocks and most any stock that you're up significantly on. Meanwhile, for my subscribers, I'd say to continue to hold onto those LI positions. They are "the places to be", I believe.

God bless!

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Sean Hyman
Sean Hyman


Dow and Russell 2000 are both down over 2% today alone. Dow Jones Industrial Average down over 600 points.