The U.S. stock market remains constructive on a trend-following basis. However, analysts at SentimenTrader are concerned over the potential for rough seas ahead as several potential warning signs have appeared on the horizon.
"These signs do not necessarily scream 'Sell Everything,' but they do suggest that investors review their contingency plans and not assume that everything is 'smooth sailing' for stocks," writes senior research analyst Jay Kaeppel in a note.
One such warning sign Kaeppel is dredging up is the "Titanic Syndrome" indicator which was created by Bill Omaha in the 1960s.
It highlights a technical market condition when stocks have recently been at a high, and then new 52-week lows suddenly jump vs new 52-week highs, suggesting developing weakness under the surface.
More specifically, in this case, SentimenTrader is applying these conditions to the Nasdaq 100. A signal is generated when 1) the Nasdaq 100 .NDX closes at a 52-week high at some point in the past seven sessions, and 2) New 52-week lows outnumber 52-week highs on the Nasdaq.
Kaeppel says this is "not a precision timing tool," but a warning sign that typically precedes some form of trouble over the next 1-3 months. That said, in his opinion, signals like this do not constitute an outright "sell" signal.
However, Kaeppel believes they can remind us of the old adage, "Hope for the best, prepare for the worst."
"As long as the major market indexes hold above their longer-term moving averages, indicator signals like the above are more 'alerts' than 'warnings.' But if things start to break down, investors might be wise to have some contingency plans already in place to reduce risk."