U.S. Stock Market: Monthly Chart Sell Signals In BA, DD, GIS, K, & ORCL

For all intents and purposes, the U.S. Stock Market was effectively unchanged last week. The closely watched S&P 500 Index and also the Russell 2000 Index were basically flat, while the DJIA and DJTA were down ever so slightly (-0.56% and -0.36%, respectively), and the Nasdaq Composite was up modestly (+0.68%) for the week.

Given the fact that St. Louis Federal Reserve Bank President James Bullard predicted last week that the U.S. Central Bank will raise interest rates starting in the first quarter of 2015 (much sooner than almost anyone on the planet expects), the U.S. stock market showed remarkable resilience yet again to potentially serious bearish news.

“The Fed is closer to its goal than many people appreciate,” Bullard said on Thursday in an interview with the Fox Business Network. “We’re really pretty close to normal”, Bullard added.

Most major U.S. stock indexes remain close to all-time record highs, and global interest rates are close to record lows (at least on the short end of the yield curve). Valuation metrics looked "stretched" for many U.S. stocks, but corporate share buy-backs so far this year are at a record pace. Companies spent approximately $160 billion in the Q-1 2014 on purchases of their own stocks. And while Q-2 results are not yet available, it would not surprise me if the total Q-1 and Q-2 purchases exceed $300 billion. While I am not sure of the long term benefit to shareholders of buybacks when your stock is posting record highs, market bulls are certainly not complaining and are clearly in the driver's seat, at least for now.

As can be seen in the first chart below, my computer trading system has yet to trigger an official monthly chart sell signal in the S&P 500 Index (or ANY major U.S. stock index as yet). For most major U.S. stock indexes, the last monthly chart sell signal was officially triggered in July 2007. However, I think it may be noteworthy that monthly chart sell signals have been triggered this month in Boeing (BA) DuPont (DD), General Mills (GIS), Kellogg (K), and Oracle (ORCL).

My best assessment here is that these important individual stock sell signals are a warning sign of trouble immediately ahead for the broader U.S. stock market.

Interesting Postscript (added Sunday night, June 29th): The Bank for International Settlements (BIS) has warned that ultra-low interest rates have lulled governments and markets "into a false sense of security". In its latest annual report, the Basel-based organization  urged policy makers to begin to normalize rates. "The risk of normalizing too late and too gradually should not be underestimated," the BIS said. "Overall, it is hard to avoid the sense of a puzzling disconnect between the markets' buoyancy and underlying economic developments globally," the BIS said. It added that low interest rates had helped increase demand for higher risk investments on stock markets as well as in property and corporate bond markets.

While the BIS doesn't set policy, it does serve as a forum for central bankers to exchange views on relevant topics from the global economy to financial markets. According to the BIS, "Growth has disappointed even as financial markets have roared: The transmission chain seems to be badly impaired." The BIS said that policy makers should take advantage of the current upturn in the global economy to reduce the emphasis on monetary stimulus. And it warned that taking too long to do this could have potentially damaging consequences, by encouraging investors to take too much risk. "Over time, policies lose their effectiveness and may end up fostering the very conditions they seek to prevent." "The predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly."

The BIS was founded in 1930 and is the world's oldest international financial institution. The BIS's membership has more than 60 members including the Bank of England, the European Central Bank, the U.S. Federal Reserve, the People's Bank of China, and the Bank of Japan.

S&P 500 Index Monthly Chart with 3-Std Dev Bollinger Bands & 36-Month Moving Average Line

Boeing (BA) with 36-Month Moving Average Line and Computer-generated Buy & Sell Signals

DuPont (DD) Monthly Chart with 36-Month Moving Average and Computer-generated Buy & Sell Signals

Special Update: U.S. Stock Market - Key Change In Pattern Detected

Few would argue with the claim that a "passive" investment strategy, using index funds, has worked best for U.S. stock market allocations over the last five years. The S&P 500 Index has almost tripled from its March 2009 low (+192% to be exact) and the Russell 2000 Small-Cap Index has done even better with a return of 242% since March 2009, not counting dividends.

Maybe the academicians are right? Maybe we should all just pick a broad based index fund and then "buy and hold" forever? From March 2009 to today's close, the S&P 500 Index has posted a 22.67% compounded annual return, plus dividends. Wow! Easy money!!

However, for any investor who doesn't have tomorrow's Wall Street Journal or a working time machine, maybe it's too much to expect that all the market pitfalls over the last 15 years could have been avoided. And maybe it's too much to expect for investors to have had 100% cash in March 2009 and then turned on a dime to become fully invested overnight at the bottom.

In fact, if an investor had bought the S&P 500 in March 2000 instead of March 2009, his compounded annual return would be just 1.65% through today (plus dividends). And along the way, this same investor would have had to suffer through two 50% corrections.

Is there a better way? Yes, but that's a conversation for another day!

So why this Special Update? What can't wait until the weekend when I usually write this column?

Besides the fact that daily chart sell signals were triggered by my computer trading system in almost every major index at today's close, I think there was a meaningful change in the pattern of intra-day trade today. Until today, "negative economic news" was generally good for stock prices AND "positive economic news" was also generally good for stock prices, the best of all worlds for the bullish case. Negative economic news was generally viewed positively by investors because most believed that the Federal Reserve would then keep interest rates artificially low for an extended period of time. Positive economic news was also generally viewed as bullish for stocks for all the usual reasons (better corporate sales, earnings, economic growth, CapEx growth, etc.).

So what's so special about today?

It was reported this morning that U.S. New Home Sales jumped 19% in May to 504,000 annualized units, which shocked almost everyone. The consensus forecast called for just 440,000 annualized units. And the U.S. Consumer Confidence Index jumped to 85.2 today, its highest level since January 2008. The consensus forecast here was just 83.5.

Most U.S. stocks rallied on this positive news this morning (as has been the pattern), but then a major downside reversal unfolded. The CBOE VIX Index jumped to 12.13 at today's close, up 17% from Friday's intra-day low (only 2 trading days ago). Actual single-day volatility jumped to 10.04 today after posting two straight days near 2.0.

Here is the list of major stock index daily chart sell signals at today's close: DJIA, Nasdaq Composite, New York Composite, Russell 2000 Index, S&P 100 Index, S&P 500 Index. And here are the daily chart sector index sell signals: BKX, NDX, QQQ, IWN, XAU, GDX, SIL, MSH, and SOX.

Of course, the only buy signal triggered today was the SDS Pro-Shares double-short S&P 500 ETF!! In the interest of full disclosure, I have a major position in these SDS shares in my managed accounts.

And to add insult to injury for the bullish case today, the Dow Jones Transportation Average is now actually down for the month so far!

The following charts illustrate the bearish outlook for U.S. stocks immediately ahead (lots of Red Dot sell signals):

New York Composite Index Daily Chart with Computer-generated Buy & Sell Signals

Russell 2000 Index Daily Chart with Computer-generate Buy & Sell Signals

S&P 500 Index Daily Chart with Computer-generated Buy & Sell Signals

Dow Jones Transportation Average Monthly Chart with Computer-generated Buy & Sell Signals