A cluster of ominous stock-market signals hints at a rocky year ahead for investors

By Joseph Adinolfi

More of the individual stocks included in the Nasdaq Composite have been struggling recently, SentimenTrader points out

Some concerning signs are emerging beneath the surface of major indexes like the Nasdaq Composite.

Major U.S. stock indexes were still trading within a few percentage points of record territory on Wednesday, despite some mild weakness seen over the past week or so.

While markets might look calm on the surface, signs of trouble might be brewing underneath, according to a report from SentimenTrader shared with MarketWatch on Wednesday. Recently, a cluster of ominous signs tied to the number of stocks involved in the rally were spotted. Previously, these clusters preceded lasting bouts of stock-market weakness, the report said.

Over the past five trading days, the "Nasdaq Titanic Syndrome" has flashed four times. Meanwhile, the "Hindenburg Omen," another breadth indicator closely watched by technical analysts, has triggered twice. When either, or both, of these signals have triggered five times or more combined within the span of five trading sessions, it has often portended trouble ahead, the SentimenTrader report said.

During the 16 occurrences going back to 1987, the Nasdaq Composite has fallen by an average of 21.7% one year later, and has only been higher afterward 40% of the time.

To be sure, SentimenTrader's cluster indicator has been triggered twice already since the current bull market began. Once was in May 2023, and another was in June 2024. Yet stocks have continued to trundle higher regardless.

Both the Titanic and Hindenburg indicators were designed to trigger when stock-market breadth deteriorates. When Wall Street strategists talk about breadth, they're referring to the number of individual stocks contributing to an index's advance. If an index is rising, but the majority of stocks within it are moving lower, it means that breadth is weakening.

And weak breadth means indexes are more vulnerable to a selloff, at least in theory. The Titanic Syndrome indicator triggers when the Nasdaq Composite is at, or near, record territory, while the number of constituent stocks within it that are hitting fresh 52-week lows outnumbers those making new 52-week highs. Technical strategists see incongruities like this as a sign that the index's strength has been predicated, somewhat precariously, on the success of a minority of its stocks, making it more vulnerable to adverse developments. The Hindenburg Omen is based on a similar idea.

"Individually, these signals are not particularly noticeable. However, when they trigger together in a tight cluster, the warning becomes far more potent," the SentimenTrader analysts said in their report.

Some strategists, including BTIG's Jonathan Krinsky, have pointed to other signs that major indexes like the S&P 500 index SPX might be overdue for a pullback. The S&P 500 tallied its 131st trading session above its 50-day moving average on Wednesday, cementing its longest streak above the medium-term trendline since 2007, according to Dow Jones Market Data.

"A combination of extreme upside metrics, significant breadth divergences, and complacent sentiment is a very risky mix, in our view," Krinsky said in a report shared with MarketWatch earlier this week.

Shares of more speculative stocks, including popular quantum-computing plays like Rigetti Computing Inc. (RGTI), have come under pressure over the past few weeks. Many were hit hard as popular momentum trades sold off on Tuesday. But that weakness has only recently started to spread to the major indexes. The S&P 500 tallied its most recent record closing high on Oct. 28.

See: As speculative corners of the market tumble, some investors are cheering

U.S. stocks finished higher on Wednesday as the market bounced back following the worst day for the S&P 500 in nearly a month, according to Dow Jones Market Data. The Nasdaq Composite COMP, the Dow Jones Industrial Average DJIA and the S&P 500 all rose.

-Joseph Adinolfi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

11-05-25 1728ET