Wednesday , 21 February 2024

The Stock Market Is a Risky Place to Be – Here’s Why

With both the fundamentals and the technicals saying the stock market is a risky place to be, we await itsinvesting crash back to reality. Here’s why.

So says Michael Lombardi ( in edited excerpts from his original article* entitled 2 Most Important Stock Charts of 2014.

 [The following is presented by Lorimer Wilson, editor of and and 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. This paragraph must be included in any article re-posting to avoid copyright infringement.]

Lombardi goes on to say in further edited excerpts:

The Fundamentals

From March of 2009 to the end of February 2014, the S&P 500 has gone up about 155%. Other indices like the Dow Jones Industrial Average and NASDAQ Composite have shown similar—if not better—performances but, as key stock indices soar, we are seeing the fundamentals that traditionally drive stocks higher weaken:

  1. Corporate insiders are dumping stocks at an alarming rate;
  2. corporate earnings growth has dropped to its slowest pace since 2009;
  3. the Volatility Index is near the low it was at just before stocks collapsed in 2007; and
  4. margin debt on the NYSE has reached a record high.

All very bearish factors.

The Technicals

From a technical point of view, something interesting has also happened on the key stock indices. Below is the weekly chart of the S&P 500.

$ SPX S&P 500 Large Cap Index Chart
Chart courtesy of
1. Since the beginning of 2012, there hasn’t been any major correction or pullback in the stock market and trading volume has steadily declined (a negative indicator). Corrections in any rising market are healthy—be it the stock market, real estate, commodities, or bonds. If an asset class continues to increase without any disruption, it takes the shape of a bubble. This is exactly what has happened in the U.S. stock market since 2012.

2. The blue line on the chart above is of the 200-week moving average of the S&P 500, which currently sits about 25% below the current S&P 500 price. What does this mean? Over my 30-year investment career, I have learned one important factor about the stock market: it always comes back to its 200-week moving average.

To see what I’m talking about, look at the long-term chart of the S&P 500 below. I have circled the areas at which the S&P 500 has come back to its 200-week moving average, be it a move above or below that line.
$SPX S&P 500 Large Cap Index ChartChart courtesy of

With both the fundamentals and the technicals saying the stock market is a risky place to be, we await its crash back to reality.

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 [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.]


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