Investor: 4 signs stocks will face a major decline

John Hussman, president of Hussman Investment Trust, wrote that United States stocks are providing the market with signals of a major decline.

Writing in market commentary Monday, Hussman opined that exponential valuations, investor complacency and the S&P 500 index within three percent of its record high are just some of the signs that a collapse in stock prices are coming. However, the declining number of stocks is just as alarming to Hussman.

“When investors are risk-seeking, they tend to be risk-seeking in everything,” Hussman stated in his commentary. “When market internals begin to break down, it’s a signal that investor preferences have shifted toward risk-aversion. In that environment, previously benign overvaluation can quickly become disastrous.”

He outlined four other indicators that predicted the peaks of 1972, 2000 and 2007:

1. 27% percent of investment advisers polled by Investors Intelligence who say they are bearish.

2. Valuations measured by the Shiller price-to-earnings ratio are greater than 18 times.

3. Less than 60 percent of S&P 500 stocks above their 200-day moving averages.

4. Record high on a weekly closing basis.