Doug Kass: Ominous Pattern Confirms S&P Is Challenged

On Thursday investors were trying to make sense of the market moves after stocks plunged at the open, touched the 200-day moving average around 1262, and then turned higher into the close.

The question becomes, was the late-day surge in the S&P a sign that buyers are coming into the market, or was it a head fake with more selling to come.

As you might imagine, strategic investor and CNBC Contributor Doug Kassexpects more selling.

Although he's not big into charts, the Seabreeze president and renown bear has taken notice of a somewhat obscure pattern called ‘3 peaks and a dome’, which Kass says is presenting itself. And it’s an ominous sign because it’s a formation that appears only at important market tops.

According to Kass, investors shouldn’t be surprised. He says the signs have been manifesting themselves for quite some time now.

”Domestically, all signs indicate the economy is weak. It is unambiguous,” he says.

And looking at the global economy, he adds the latest economic data shows that China PMI (published by HSBC) is close to contraction at 50.1. And he adds the ZEW Indicator of Economic Conditions in Germany fell to –9.0 in June.

“Germany is supposed to be the strongest part of the Eurozone,” says Kass. “The world is slowing folks. The notion of a smooth and sustainable recovery is now in question."

And he thinks world leaders know it.

“When I looked at the SPR release and listened to Bernanke's press conference I got a sense of panic from the policy makers,” Kass says. "We're entering an uncertain and scary market."

Oppenheimer's Carter Worth and Pete Najarian are on the opposite side of the trade. Click here to go to Market Pros: Did S&P Just Make Meaningful Reversal?

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On June 23, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Jim Iuorio owns (BMY) calls; Jim Iurio is short (BMY) puts; Finerman Owns (AAPL); Finerman owns (BAC); Finerman owns (NM); Finerman owns (TGT); Pete Najarian is long (AAPL); Pete Najarian is long (C); Pete Najarian is long (F) bonds; Pete Najarian is long (MRVL); Terranova Owns (VRTS); Terranova Owns (IBM); Terranova Owns (FCX); Terranova Owns (CVI); Terranova Owns (F); Terranova Owns (AAPL); Terranova Owns (CAT); Terranova Owns (BX); Terranova Owns (HPQ); Terranova Owns (MA); Terranova Owns (PEP); Terranova Owns (MCD); Terranova Owns (JWN); Terranova Owns (TM); Terranova Owns (LULU); Terranova Owns (WFM); Terranova Owns (DAR); Terranova Owns (BJ); Terranova Owns (XOM); Terranova Is Short (DELL)

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