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Cause for Concern: Emerging Signals Look Bearish

Tuesday, 6 Mar 2012 | 5:43 PM ET

Up and down Wall Street investors have started looking for signs, trying to determine if the market’s sharp turn lower is simply consolidation, or the start of something more ominous.

Although an S&P pullback after the recent march higher was widely expected, the magnitude of the sell-off caught many investors by surprise.

By the end of the session, the Street had put in its worst day in nearly 3 months.

What should you make of the down move?

If Abigail Doolittle of Peak Theories is interpreting chart patterns correctly, there’s more selling to come.

Looking at the S&P, she’s concerned by Tuesday’s decline. “The S&P slipped back to the top of its 2-year trading range which was 1350- 1250,” she says. That suggests the market could again bounce between those two levels, making the path of least resistance lower. “It signals the S&P really could decline further."

Doolittle goes on to say that she believes that recent action in the Russell may be considered a leading indicator -- and for the past few weeks the Russell has been challenged. “It looks like a bearish signal of what’s to come.”

Charting the Markets: Apple, S&P, Small-Caps & Materials
Checking the technical indicators for signs of market stability, with Abigail Doolittle, Peak Theories Research. The Fast Money traders discuss whether Apple is now a momentum stock and how to play it, and the best low beta stocks to buy on the pullback.

On Tuesday, “It dropped through its 50-day,” she says. “All the other indexes are above their 50-day.”

She also says she’s seeing something called a rounding top pattern. If the Russell trades down to 750, that would take the small cap index below its 200-day.

All told, “That's a bearish footprint for the S&P and Dow,” she says.

In addition, Doolittle points to weakness in materials as another bearish sign. “It’s below its 50-day,” she says. “The pattern confirms a double top.”

Does that mean you should brace for a big whoosh lower? No.

Doolittle says the decline, "probably won’t come in one move but over the next several week- all spread out.”

“I think we see some stabilization in the near-term but overall I think we’re starting to see a reversal of the near-term uptrend in equities.

New Feature: Wall Street History Nuggets
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Trader disclosure: On March 6, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: J. Najarian is long IBM call spreads; J. Najarian is long QCOM call spreads; J. Najarian is long GDX call spreads; J. Najarian is long GDXJ call spreads; J. Najarian is long CRM call spreads; J. Najarian is long FIO call spreads; J. Najarian is long KERX call spreads; Finerman is long (AAPL); Finerman is long (BAC); Finerman is long (JPM); Finerman is long (HPQ); Finerman is short (SPY); Finerman is short (IWM); Finerman is short (MDY);

For Ron Insana
No Disclosures

For Abigal Doolittle
Doolittle is long (SDS)

For Mark Mahaney
Firm makes market in (AMZN)

For Geoffrey Scott
Firm owns foreclosed homes in Phoenix




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