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Beware Of These Stock Market Warning Signs

Four of the five major equity averages set all-time intraday highs recently. The Russell 2000 has the largest year-to-date gain but set its all-time high on February 10. The weekly charts are starting to show technical warnings which I explain below. The most important warning comes from the Nasdaq, which is below its five-week modified moving average.

The Dow Jones Industrial Average set its all-time intraday high at 32,009.64 on February 24. This is between its semiannual pivot at 31,459 and its annual risky level at 33,425.  The S&P 500 set its all-time intraday high of 3,950.43 on February 16. This put the index just above its annual risky level at 3,932.35.  The Nasdaq Composite set its all-time intraday high of 14,175.12 on February 16. Its monthly pivot is at 13,804.

The Dow Jones Transportation Average set its all-time intraday high of 13,698.78 on February 24. The high was shy of its annual risky level at 14,424. The Russell 2000 Index set its all-time intraday high of 2,318.09 on February 10. The high was well above its annual risky level at 2,120.34, which is now a pivot.

A reason for concern is the size of margin debt that reached a record high at the end of January. If the market starts to decline significantly, there will be margin call selling. This was a major factor in the stock market decline in the first quarter in 2020.

The weekly chart for the Dow Jones Industrial Average is positive but overbought. The Dow is above its five-week modified moving average at 30,950. Its 200-week simple moving average lags at 25,676. The 12-week slow stochastic reading is overbought at 87.41. My proprietary analytics shows quarterly and semiannual pivots at 31,052 and 31,459, with an annual risky level at 33,425.

The weekly chart for the S&P 500 is positive but overbought. The S&P is above its five-week modified moving average at 3,819.53. Its 200-week simple moving average lags at 2,919.26. The 12-week slow stochastic reading is overbought at 87.55. A reading above 90.00 would put the S&P 500 in an inflating parabolic bubble. My proprietary analytics shows a semiannual value level at 3,511.43 with a quarterly pivot at 3,836.19, and an annual risky level at 3,932.35.

The weekly chart for the Nasdaq Composite has been downgraded too neutral. The index is below its five-week modified moving average at 13,335.49. Its 200-week simple moving average is 8,370.21. The 12-week slow stochastic reading is overbought at 87.47. The reading was above 90.00, which put the Nasdaq into an inflating parabolic bubble formation. My proprietary analytics shows quarterly, annual and semiannual value levels at 12,789.26, 12,000.71 and 10,972.72, respectively. 

The weekly chart for the Dow Jones Transportation Average is positive with the average above its five-week modified moving average at 12,906.93. Its 200-week simple moving average lags at 10,407.71. The 12-week slow stochastic reading is rising at 79.32 so it’s almost overbought. My proprietary analytics shows semiannual and quarterly pivots at 12,314.56 and 12,003.69, with an annual risky level at 14,424.55.   

The weekly chart for the Russell 2000 Index is positive but overbought with the index above its five-week modified moving average at 2,152.42. Its 200-week simple moving average lags at 1,561.45. The 12-week slow stochastic reading is extremely overbought at 91.08. The reading above 90.00 puts the Russell 2000 in an inflating parabolic bubble. My proprietary analytics shows quarterly and semiannual value levels at 1,840.34 and 1,711.55, with an annual pivot at 2,120.34.

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