The US share market is flashing all kinds of warning signals. The short term direction could turn sharply negative, with direct implications for global share markets.

Fundamentally, the good news of tax cuts is priced in, yet valuations look stretched. The improving global outlook is threatened by potential trade wars. And now the daily chart is giving multiple “Sell” signals.

Let’s tick off the negatives:

  1. A double top formation
  2. …and a 3 candle reversal pattern
  3. ….all occurring at the 2,800 resistance
  4. AND last night the action pierced the upper Bollinger band, and then reverted through the band (admittedly, as it did the previous night) while the bands are narrowing

The US SPX 500 index is arguably the most influential share market index in the world. A downdraft in this index is likely to affect global sentiment. Caution is warranted and investors and traders may watch closely for clues to the short term.

Of course there are no certain ways to predict the future, including technical analysis. If the SPX 500 trades up through 2,800 all of these negative signals are wrong. But until that occurs it’s reasonable to look out for substantial downside risks.