If You Own any Stocks, You Must See These 3 Warning Signs

Hold onto your hat – it’s starting to get ugly!

Stocks got chopped to bits yesterday. Earnings disasters claimed victims left and right. I could spend an entire week just talking about the list of stocks like Keurig Green Mountain (NASDAQ:GMCR) that walked right into the propeller blades.

And today I’m posting three warning signs you need to see right now if you’re a trader or investor. I’m telling you now, they ain’t pretty.

So if you’re a bit squeamish, you might want to bail at this point.

Still with me?

Great. But hey, if you had the guts to watch yesterday’s beat down in real time, you should be more than prepared for what I’ve cooked up today.

So pay close attention. What you’re about to learn could save your hide over the next couple of weeks as summer trading turns sour.

Here goes…

1. The S&P 500 is trapped in its longest consolidation period in 65 years 

S&P 500

According to Price Action Lab, the 4.75% range that has hugged the S&P since late February is the largest consolidation period in the market since the 1950s.

Even though yesterday’s action was tough to watch, stocks remain in this historically tight range—so it’s difficult to get too bullish or bearish without a break one way or the other. And you know what that means…

Yep. More frustrating, choppy trading…

2. 113 components of the S&P 500 are now in a bear market

This gnarly statistic is courtesy of my pal Ryan Detrick. Ryan recently asked if the S&P 500 is “broken and in a stealth bear market”—and I think he makes a very interesting case that you should consider…

“With the S&P 500 just 1.94% off its recent 52-week high, for 22% of its components to be in a bear market is quite worrisome,” Ryan says. “Again, is this showing major deterioration beneath the surface and suggesting a stealth bear market?”

Maybe so. And if we are entering a stealth bear market, there’s one group of stocks that look especially vulnerable…

3. Small-cap stocks are dangerously close to breaking down

The Russell 2000 small-cap index was smacking around the major averages earlier this year. But since June, these small stocks have started to lose momentum. Now, they’re getting precariously close to falling off a cliff. Take a look:

Russell 2000 Small-cap Index

Now, we’ve tried to play a bounce in small-cap stocks as recently as last week when the Russell 2000 iShares (NYSE:IWM) “hammered” off its long-term moving average.

“Is this bounce for real? We’re willing to take that chance,” I told you last week. “If we’re wrong, we’ll make run for it. But we can’t let an opportunity like this slip through our fingers…”

We were just a nose hair away from having to sell this trade today. But at the last moment, IWM popped back above its long-term moving average. It’s safe—for now.

With market leadership narrowing, it’s imperative that we’re trading the right names at the right time.

Range-bound averages, sneaky bear markets in hundreds of stocks and impending breakdowns are scary, that’s for sure.

But you have to keep it together and plow through these putrid numbers. If this thing starts to crack, you have to be prepared to act…

Regards,

Greg Guenthner
for The Daily Reckoning

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