Beware: 5 Indicators Point to Correction Ahead

Currently, a number of indicators favor the downside in the overall stock market. Today, we'll focus on the Nasdaq 100 for a trade that sets you up to profit twice as much as tech stocks fall.
Successful trading requires an understanding and analysis of a variety of indicators. Many indicators will tell traders the same thing because they are calculated in similar ways. Looking at indicators that are too much alike can create a false sense of security in a trader.
As one example, stochastics and the Relative Strength Index (RSI) both use the same concept in their calculation and both are designed to identify potential tops and bottoms. Using both to find an overbought or oversold market will not add any new data to an analysis.
Diverse indicators should be used in a way that technicians call a "weight of the evidence" approach. When most of the evidence points to a decline, a bearish position should be taken. In general terms, there are indicators that:
1. Follow the trend, like moving averages
2. Assess the strength of the trend, like MACD
3. Identify potential price reversal areas, like stochastics
4. Demonstrate the enthusiasm of traders, like volume
5. Show what history reveals is the most likely course of events, like seasonal patterns
There are other indicators within each category and there are additional categories, but one from each of these five is usually sufficient to get an idea of where the market is probably headed.
A weekly chart of PowerShares QQQ Trust (NASDAQ: QQQ), an ETF that tracks the Nasdaq 100, is shown below with four of these indicators. Moving averages have been omitted because they follow the trend and will not generally provide information about potential tops or bottoms until after the fact. For now, prices are above all major moving averages.

The price is shown with the election cycle overlaid. That indicator points downward. Elections have consequences for traders, but the outcome can't be assessed until the results are known. In November, traders will learn who is spending the next four years in the White House and, equally important, what the next Congress will look like.