The U.S. stock market is stuck in the danger zone

The U.S. stock market has taken a turn for the worse during the past three weeks. While hopes were high that the market would break out of its sideways trend, it hasnt.

Technical indicators

S&P 500 is below its 50- and 100-day moving averages (MA) = Bearish

Moving average convergence/divergence (MACD) of (S&P 500; 19,39,9) is below the zero line = Bearish

MACD (S&P 500; 19,39,9) is below its signal line = Bearish

S&P 500 support is 2,130 and 2,072 (200-day moving average)

Sentiment indicators

Institutional Investor (II) survey: (Oct. 18) 42.9% Bulls; 23.8% Bears = Neutral

American Association of Individual Investors (AAII) survey: (Oct. 19): 23.7% Bulls; 37.8% Bears = Neutral

CBOE Volatility Index (VIX) at 13.34 = Bearish

Relative Strength Index (RSI) of S&P 500 at 46.62 = Neutral

According to the technical indicators above, the equity market is gasping for air.

Unless it can retake its 50- and 100-day moving averages, the market remains in the danger zone. If it does fall 8% to 10% in the near future, support should hold at, or near, 2,000 on the S&P 500
SPX, +0.08%
(Those who buy on the dips would consider that a buying opportunity.) Obviously, that is not an easy market to navigate, especially as we get closer to the election.

The sentiment indicators tell an even more fascinating story. Although neither sentiment survey is at extremes, the pros are bullish, and retail investors are bearish. Typically, retail investors get it wrong, and they are voting with their feet: Billions of dollars are pouring out of managed-equity mutual funds and into ETFs. Many retail investors are buying index funds.

Although volatility has been almost nonexistent during the past few months, that should change as we approach the election, and especially after it.

Read: This October still has a chance to look like the month we know and fear

The technical indicators are giving us a clear message that the stock market is struggling. Here are a few other clues that you ought to heed:

1. Earnings havent been a disaster, but they are mixed. Nevertheless, most stocks are still quite expensive with high multiples. Unfortunately, earnings havent been good enough to lift the indexes above resistance.

2. Be prepared for anything during this crazy election season.

3. A canary in the coal mine was the recent drubbing of Union Pacific
UNP, +0.90%
down 7% in one day. The company missed its numbers badly, and also took down other railroad and trucking stocks. As you know, railroads are a key barometer for the health of the economy, and are considered a forward-looking indicator. Because of UNPs black eye, the Dow Jones Transportation Indexs performance could be suspect even in the face of the airline sector strength, which seems to be single-handedly holding it up. According to Dow Theory, if both the Transports and Industrials move in lockstep to break support levels, a correction is imminent. By the way, did anyone in the financial media mention this last week? No, they didnt. (Note: Thanks to researcher Jeff Bierman for finding this information.)

4. Heres another scary fact: When 2,100 in the S&P 500 is violated with unrelenting selling pressure, there are 200 points of air underneath it.

5. Although the S&P 500 frequently spikes at the open, its been unable to maintain the uptrend for long. Be on the lookout for these types of intraday reversals, which is a negative sign.

6. The Federal Reserve keeps promising (or threatening) to raise interest rates in December. (Theres a 75% chance, according to the experts.) Personally, I dont think they will but if they do, there would be a negative reaction.

7. Heres something else to consider: For the past two years, the market has been in a sideways pattern, i.e., its eked out a small gain. Investors are getting anxious to generate any return on their money, just one of the many reasons they are dumping managed funds, and the reason they are desperately seeking yield. In my opinion, this is the time to be patient while waiting for the right opportunity. Anyone trying to force the market to give them money is going to be sorely disappointed in the near future.

Because Halloween and the election are drawing near, I dont want to scare you. Nevertheless, the warning signs are everywhere. Once again, the strongest case for the bulls is the invisible hand, the entity that frequently spikes the indexes higher whenever the market starts to sell off. As Ive said before, fear will overwhelm the invisible hand one day, but until then we can expect to get this drip-drip-drip type of selloff on low volatility.

Bottom line: The odds favor the bears in the near future. Keep your eye out for 2,130 on the S&P 500. If we drop below that level and the 200-day moving averages on the S&P 500, it could get nasty. Raise cash as we move closer to a correction. The biggest surprise is that we havent had one yet.

Michael Sincere is the author of Understanding Options 2E and Understanding Stocks 2E.

Read next: Heres proof that an all-stock portfolio doesnt really pay off

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