Markets hate uncertainty more than bad news, which is one reason they've swooned recently. But technical analysis looks at the patterns deeper than the daily news, and charts suggest a real bear ahead.
It's easy to be pessimistic these days. Libya's civil war, surging oil prices and the disaster in Japan have combined forces to send financial markets tumbling. But the cold, hard facts about the economy paint a more optimistic picture.
With analysts expecting the stock market to rally, investors are feeling bullish. But are they too bullish? High investor confidence has often signaled a market turn for the worse in the past. Other indicators also show cause for caution.
A quiet week for earnings, along with new reports on consumer credit, consumer sentiment, economic optimism, wholesale trade, the U.S. trade balance and federal budget balance, should give the stock markets a chance to settle down after last week's volatility.
A new Bloomberg poll shows 68% of investors say Obama's policies are "detrimental to the U.S. investment climate." That's despite soaring corporate earnings and a huge bounceback in stock prices during his administration. Somewhere, there's a disconnect.
For a host of reasons, when the dollar spikes, stocks drop, and when the dollar falls, stocks soar. Right now, with dollar sentiment reaching maximum bearishness, contrarians are preparing for the next shift. If the dollar rises again, stocks could reverse.
Investor sentiment is a remarkably accurate contrarian indicator: When investors become exuberantly bullish, the market is nearing a high, and when investors are strongly bearish, market lows are a good bet. Be warned: Right now, the charts show the sort of optimism that precedes a fall.