Technical analysts warn that a number of indicators are flashing warning signs.
Stocks posted losses on Tuesday as weak manufacturing data rocked the market, and Ned Davis Research's Tim Hayes argues that based on a number of technical indicators breaking down, there could be more losses ahead.
The fourth quarter got off to a rocky start as recession fears hit stocks, and technical analysts are warning that there could be more downside ahead. "If the outlook was turning bullish for equities, we would see the major benchmarks breaking to record highs with decisive and broad-based confirmation from breadth indicators...We would see yield curves steepening," Hayes wrote in a note to clients on Tuesday. He believes that all of these factors are "a reflection of waning confidence in the macro environment globally."
Hayes argues that the most recent rally has been uneven in nature, which could spell trouble ahead. He noted that not only have U.S. indices failed to regain July highs, but outperformance in large-cap stocks is masking signs of weakness in other areas of the global stock market.and other cap-weighted indices, underlying deterioration has been reflected by the equal-weighted ACWI," he wrote, calling this divergence a sign of "mounting economic pessimism.
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