Yesterday, I put out a brief piece highlighting 1684 as a level of resistance on the S&P, that level was rejected earlier in the session but stocks stage a late session rally to close pretty much at that level. I think it is worth highlighting a few other factors that should give equity investors cause for concern.

One point highlighted yesterday, was the relative underperformance of blue chips when the market recently traded up through 1700. This can be further highlighted by the NYSE Advance-Declines chart, which made a double top in mid July and has notably failed to show any signs of recovering with the rally of the last couple of weeks. The set up is very similar to that of the end of 2007 and we all know what came next in 2008.

Copper, is historically a very sound barometer of economic health, and although we have seen a decent bounce off lows we are still some way off highs registered in the past year, technically $3.37 is a significant line of resistance and if not broken, a negative bias will remain which in turn suggests the economy is not in as rude a health as many think.

Finally, looking at the put/call ratio, again historically this is quite a useful tool as it measures the amount of complacency in the market, this reading was at 0.45 as of last night which is its lowest level for a year, which suggests a relative lack of downside protection.

Although economic conditions have improved, warning signs are appearing and with geopolitical risks potentially at their highest for a long time, the risk for equities in the near term looks to the downside.

Philip Ball | Sales and Trading