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After a steep climb to the top of the hill, major U.S. stock indexes…have recently 
reached record highs. Will the climb continue or is the U.S. stock market at the top of the roller coaster and about to take a historic plunge?
So writes John Nyardi (http://wallstreetsectorselector.com) in edited excerpts from his original article* entitled Dow Jones Industrial Average About To Plunge?.
This post is presented compliments of Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds), www.munKNEE.com (Your Key to Making Money!) and the Intelligence Report newsletter (It’s free – sign up here). You can also “Follow the munKNEE” daily posts on Twitter or Facebook.
The article may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read.
Please note that these paragraphs must be included in any article re-posting to avoid copyright infringement.
Nyardi goes on to say in further edited excerpts:
Many signs point to a plunge for the Dow Jones Industrial Average and major indexes rather than a continued climb. If history is ever a good indicator of forthcoming events, it is absolutely imperative that we pay attentions to these signs, and prepare for the worst.
Here are a few reasons why the major U.S stock indexes could see declines in the coming months….
1. Excessively bullish sentiment: The Investment Company Institute reports that inflows to mutual funds from retail investors is running at high levels…as mom and pop investors scramble to buy stocks after missing most of the recent rally.
The Investment Company Institute also reports that the total assets of all stock-based mutual funds climbed from $5.93 trillion in December of 2012 to $6.29 trillion in February of 2013 – and that was before the record setting highs.
2. Deteriorating economic fundamentals: The impact of the budget sequester is now being illustrated by the recent jump in unemployment claims, as well as the disappointing payrolls reports from ADP and – most recently – the closely-watched non-farm payrolls report from the Bureau of Labor Statistics on April 5th which was an unmitigated disaster.
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The Institute for Supply Management’s March 2013 reading declined 2.9 percent from February’s 54.2 for a reading of 51.3 during March. The ISM also reported that its March Non Manufacturing Index fell in March, as well, missing expectations, to join previous disappointments in recent PMI reports.
3. Contrarian bullishness: Dr. Alan Greenspan…appeared on CNBC on March 15th…[and] described stocks as “significantly undervalued”. This remark set off alarm bells with many commentators and investors and those bells continued as Meredith Whitney chimed in on CNBC, saying, “I have not been this constructive and bullish on US equities in my career.” Such “uber bullishness” has oftentimes proven to be a good sell signal for the Dow Jones Industrial Average and other major stock indexes.
4. Sell in May and Go Away: This doctrine is based on the fact that the period between October and May is the time of year when most gains are made in the stock market, with the five-month period of May through September being negative or flat. As we move into April’s showers, May’s “flowers” are just days away.
5. Bond market warnings: The bond market has not been behaving in a way that would confirm the recent rally in the Dow Jones Industrial Average and other major U.S. stock indexes….The two have decoupled as bond yields have been dropping while the stock market has been climbing. This is not the normal configuration of these two indexes and so it’s likely that one of them is wrong and will have to correct to eliminate this divergence. The bond market is usually considered to be “smarter” than the stock market and so this would point to the possibility of a significant correction ahead for the S&P 500.
Bottom line: Overall, current conditions bring us a combination of deteriorating macroeconomic fundamentals, contrarian indicators, negative technical data as well as the time-honored, seasonal admonition to “sell in May and go away.”
Added together, it’s easy to conclude that major U.S. indexes like the Dow Jones Industrial Average and S&P 500 may have, indeed, reached the top of the roller coaster and are about to take a significant plunge.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://wallstreetsectorselector.com/2013/04/dow-jones-industrial-average-at-the-top-of-the-mountain/ (Learn more about the Dow Jones Industrial Average and the U.S. stock market with Wall Street Sector Selector’s Free ETF Review! Disclaimer: The content included herein is for educational and informational purposes only, and readers agree to Wall Street Sector Selector’s Disclaimer, Terms of Service, and Privacy Policy before accessing or using this or any other publication by Wall Street Sector Selector or Ridgeline Media Group, LLC.)
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