Market Watch: These 3 Ominous Charts Signal Investors Could be in for Some Serious Sh-t!

Article by Shawn Langlois in Wall Street Journal Market Watch

J.C. Parets of the All Star Charts blog has been sounding the alarm since October that “there is a ton of risk” in this stock market.

How’s that call doing so far?

Exhibit A: Tuesday’s 799-point drop on the Dow.

Exhibit B: Thursday’s 450-point drop.

So what does Exhibit C have in store for us?

Even before this latest batch of selling really began to accelerate, Parets urged investors to consider loading up on cash.

“Don’t let anyone tell you that heavy cash positions are a bad idea. It’s your cash. You earned it,” he wrote on Tuesday. “If you want to raise cash during more volatile environments, I think it’s way better than getting chopped up, or worse, closing your eyes and hoping the big bad market goes away.”

Then, on Thursday, with investors absolutely not enjoying any semblance of a rebound, Parets posted three charts he believes could ultimately map out some serious damage for the stock market.

“I firmly believe that a much more severe correction is on the near term horizon if these charts start to break, and we’re awfully close,” he warned.

His first cautionary chart comes from the technology sector:

Parets explains that a key part of the whole bullish thesis on tech was that it was breaking above its March 200 highs. What happens if it drops below that level? “Then there is unlimited downside potential in the largest sector in the S&P 500, by far,” he said.

No. 2 shows how financials, “the other bubble from the past 20 years,” are also dancing around a pivotal point.

“Regional Banks breaking out above their historic 2007 bubble highs was incredibly constructive for the bigger picture in financials,” Parets wrote. “However, if we lows those highs, then like Tech, there is a ton of risk to the downside.”

Lastly, the broker dealers:

“Breaking above those 2007 highs was incredibly constructive,” Parets said. “So is this just a successful retest or is this an epic failure up here and BDs come crashing down, kind of like what Deutsche Bank is currently doing in Europe?”

What happens now? Well, for starters, he warns that “1,000-point Dow moves should be expected until further notice,” so position yourself accordingly.

Which brings us back to what that means to Parets.

“I’ve been a huge advocate of heavy cash the past couple of months, particularly when it comes to stocks. Let the dust settle and let this market be someone else’s problem,” he said. “If we break these levels I’ve pointed to above, we could be in for some serious sh-t.”

To read this article in Wall Street Journal market Watch, click here.