The broad stock market decline I’ve been looking for over the past few weeks hasn’t happened yet.

Instead, the market has continued to press higher.

Overbought conditions have become more overbought. Negative divergences have grown more negative. And my e-mail inbox and Twitter feed have been filling up with less-than-complimentary comments.

[ad#Google Adsense 336×280-IA]But nothing changes the basic setup right now…

Stocks are dangerously overbought.

There is far more risk in the market than is reflected with the Volatility Index (“VIX”) trading below 14.

Most folks buying stocks today are probably going to wish in three or four months that they hadn’t done so.

It is hard to be bearish when stocks are moving higher.

It is so much easier to simply join the chorus of bulls and sing, “Buy, Buy, Buy.”

But to do so would mean ignoring the multiple warning signs the market has flashed over the past few weeks – including a major caution sign that occurred Wednesday.

The S&P 500 closed above its upper Bollinger Band.

Take a look…

Bollinger Bands mark the most probable trading range for a stock or an index. Moves outside of the Bollinger Bands are extreme and often lead to reversals – especially when they occur after a long-trending move.

The S&P 500 has closed below its lower Bollinger Band several times over the past year. In every case, that move marked an important intermediate-term bottom for the stock market. A close below the lower Bollinger Band is an indication of panic selling – which usually happens at the end of a downtrend.

For the first time in more than two years, the S&P 500 closed above its upper Bollinger Band on Wednesday. That’s rare because you don’t often see panic buying in the stock market. But that’s what happened Wednesday.

So let’s add this to the long list of indicators that are screaming “caution” right now.

Be careful with new purchases and tighten your stops on existing long positions. The market looks dangerous right here.

Best regards and good trading,

Jeff Clark

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Source: Growth Stock Wire