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Longtime readers know I use this chart to define bull and bear markets. If the S&P 500 is trading above its 20-month EMA, stocks are in a bull market. If the index is trading below the line, the bear is in charge.<\/p>\n
The MACD<\/a> indicator at the bottom of the chart provides one of the early warning signs of a bear market.<\/p>\n Without getting too complicated, if the black MACD line is trading above the red line, stocks are in a bull market. When the black line crosses below the red line, traders need to be on the lookout for the bear.<\/p>\n Notice how in 2000 and 2007, the MACD indicator gave us that “bearish cross” from extremely overbought conditions. In both cases, the S&P 500 dropped into a bear market a few months later.<\/p>\n Of course, you’ll notice the S&P 500 also dropped below its 20-month EMA in 2010 and 2011 (the red arrows on the chart). But, in both of those situations the MACD was more neutral than overbought. There wasn’t a bearish cross in 2010. And in 2011, the bearish cross reversed before the end of the year.<\/p>\n So, we didn’t have the conditions necessary for a bear market.<\/p>\n Today, though, the storm clouds look a little more ominous.<\/p>\n The MACD indicator completed a bearish cross last November. And, it hasn’t yet made a strong reversal as it did in 2011. Instead, the black and red lines are moving together. The bullish momentum hasn’t returned. And that’s a significant warning sign.<\/p>\n Of course, the stock market did recover from December’s breakdown. And, the S&P 500 did manage to make a new all-time high in July. But, that action has created negative divergence on both the MACD and Relative Strength Index (RSI)<\/a> indicators – marked by the blue lines on the chart.<\/p>\n Negative divergence – when a chart makes a higher high but an indicator makes a lower high – tells us that the momentum behind the rally is waning. It’s a sign of a potential change in trend from a bull market to a bear market.<\/p>\n This is just one of the reasons that suggests to me that the stock market may be heading for a crash – and soon.<\/p>\n If you’re looking for more proof, I share a few other reasons in a special presentation I recorded recently (click here to watch it).<\/p>\n The S&P 500 is still trading above its 20-month EMA, for now. So, the bull market is still intact. But, there are plenty of caution signs.<\/p>\n So, like I said earlier, maybe you should carry an umbrella. You know… just in case.<\/p>\n Best regards and good trading,<\/p>\n Jeff Clark<\/p>\n P.S.<\/strong> I haven’t been shy about my thoughts on the current bull market. And, I’m convinced that we’ve already seen the peak.<\/p>\n It will be a scary time for most everyday folks who own stocks. Long-term investors who aren’t prepared (and that’s most of them) could soon lose a lot of money…<\/p>\n But not traders. Traders don’t fear market crashes. In fact, we get excited for them. As scary as they seem, they can be a goldmine for trading profits… Especially if you use my strategy.<\/a><\/p>\n![](\"https:\/\/casey-assets.s3.amazonaws.com\/images\/misc\/jeff-clark-signature.png\")
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