Stocks have been rallying for a while, and there could be signs of things getting long in the tooth.
The first potentially bearish pattern occurred on July 14, when the index inched 1.3 points above the earlier high. It then made a slightly lower low, resulting in a spinning top / outside day. An early attempted rally fell flat two sessions later (on Friday), resulting in a large bearish outside candle.
Next, consider the ascending channel that began in November. Notice how prices failed to reach the top line in early June and now again in July. It appears that the mid-line of the channel could mark the new top of the price range, another sign of momentum slowing.
Third, internals are weakening as fewer stocks participate in moves to the upside. The Advance/Decline line on this chart has been falling since the start of July. Other studies of breadth, like the performance of the equal-weighted index (RSP) have painted a similar picture.
Additionally, weakness is coming from risk-on cyclicals like industrials, financials and energy. The Dow Jones Transportation Average tells a similar tale by failing to hit a new 52-week high in over two months. Is that a Dow Theory non-confirmation of this month’s new high? (Small caps are also showing signs of a breakdown, as we cited last week.)
Fourth, did you know that the 50-day simple moving average (SMA) on the S&P 500 has been rising for 168 sessions? That’s the longest positive streak since September 1995. (Illustrated on this chart with our custom script MA Streak.)
In and of itself, this doesn’t have a ton of significance. It’s simply a reminder of how long this run has lasted. Given seasonality (summer), weakening internals cited above and worries about the delta variant of coronavirus, some investors may worry about the bulls losing control.
TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
The first potentially bearish pattern occurred on July 14, when the index inched 1.3 points above the earlier high. It then made a slightly lower low, resulting in a spinning top / outside day. An early attempted rally fell flat two sessions later (on Friday), resulting in a large bearish outside candle.
Next, consider the ascending channel that began in November. Notice how prices failed to reach the top line in early June and now again in July. It appears that the mid-line of the channel could mark the new top of the price range, another sign of momentum slowing.
Third, internals are weakening as fewer stocks participate in moves to the upside. The Advance/Decline line on this chart has been falling since the start of July. Other studies of breadth, like the performance of the equal-weighted index (RSP) have painted a similar picture.
Additionally, weakness is coming from risk-on cyclicals like industrials, financials and energy. The Dow Jones Transportation Average tells a similar tale by failing to hit a new 52-week high in over two months. Is that a Dow Theory non-confirmation of this month’s new high? (Small caps are also showing signs of a breakdown, as we cited last week.)
Fourth, did you know that the 50-day simple moving average (SMA) on the S&P 500 has been rising for 168 sessions? That’s the longest positive streak since September 1995. (Illustrated on this chart with our custom script MA Streak.)
In and of itself, this doesn’t have a ton of significance. It’s simply a reminder of how long this run has lasted. Given seasonality (summer), weakening internals cited above and worries about the delta variant of coronavirus, some investors may worry about the bulls losing control.
TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
