US MARKETS STALL NEAR END OF JULY AS GLOBAL MARKETS RETREAT – ARE WE READY FOR AN AUGUST SURPRISE? – August 4, 2021
One thing that seems to be certain in the markets right now is the past hyper-bullish trending which appears to have weakened since early 2021. As a result, the longer-term Custom Indexes we use to help gauge and understand market trends are showing a very clear weakening of trends.
In this article, we are going to review three of our custom index charts on a weekly chart basis, the Custom US Stock Market Index, the Smart Cash Global Market Index, and the Custom Volatility Index. Each of these charts highlights something unique related to current market trends.
Use this information to read between the line and to help establish your own expectations for the markets going forward. We’ll provide our conclusion near the end of this research article.
CUSTOM US STOCK MARKET SHOWS DIVERGENT MARKET TRENDS
This Weekly US Stock Market Index chart highlights the rally from the November 2020 election into the start of 2021. After that peak is reached in late February, one can clearly see the divergence on the RSI indicator. Below, those trends counter to the moderate price rally phase on the chart. We believe this divergence is essential after such a strong rally and maybe setting up a market base/momentum base where price may attempt another rally in the near future.
As of right now, we have not seen a breakdown event on this weekly chart, although one may take place before any new rally attempt starts. What we are seeing is a decidedly weaker price trend and a consolidation phase in the markets after the hyper-bullish rally phase of the past 15+ months.
The breakdown of the upward price trend, below the MAGENTA trend line, is a bit concerning, but overall the markets have not shown any extreme weakness yet and may continue to push higher after a brief consolidation/basing setup.
Still, traders and investors should be somewhat concerned that any breakdown in price may prompt a -13% to -18% pullback – targeting the $1025 level on this chart.
One thing that seems to be certain in the markets right now is the past hyper-bullish trending which appears to have weakened since early 2021. As a result, the longer-term Custom Indexes we use to help gauge and understand market trends are showing a very clear weakening of trends.
In this article, we are going to review three of our custom index charts on a weekly chart basis, the Custom US Stock Market Index, the Smart Cash Global Market Index, and the Custom Volatility Index. Each of these charts highlights something unique related to current market trends.
Use this information to read between the line and to help establish your own expectations for the markets going forward. We’ll provide our conclusion near the end of this research article.
CUSTOM US STOCK MARKET SHOWS DIVERGENT MARKET TRENDS
This Weekly US Stock Market Index chart highlights the rally from the November 2020 election into the start of 2021. After that peak is reached in late February, one can clearly see the divergence on the RSI indicator. Below, those trends counter to the moderate price rally phase on the chart. We believe this divergence is essential after such a strong rally and maybe setting up a market base/momentum base where price may attempt another rally in the near future.
As of right now, we have not seen a breakdown event on this weekly chart, although one may take place before any new rally attempt starts. What we are seeing is a decidedly weaker price trend and a consolidation phase in the markets after the hyper-bullish rally phase of the past 15+ months.
The breakdown of the upward price trend, below the MAGENTA trend line, is a bit concerning, but overall the markets have not shown any extreme weakness yet and may continue to push higher after a brief consolidation/basing setup.
Still, traders and investors should be somewhat concerned that any breakdown in price may prompt a -13% to -18% pullback – targeting the $1025 level on this chart.
COMBINED CUSTOM US & SMART CASH (GLOBAL) INDEX WEEKLY CHART
This combined Custom US & Smart Cash (Global) Index Weekly chart paints a very clear picture of the type of technical price pattern that is currently unfolding. The ORANGE line on the chart is the Custom Smart Cash (Global) Index Weekly data. The Japanese Candlesticks are the Custom US Index Weekly data.
What we’ve attempted to show you on this chart is how the Custom Smart Cash Index tends to break downward many weeks, or months, before the US market begins a move downward or sideways. For example, in early 2018, the Smart Cash Index peaked and rolled downwards while the US market entered a period of extreme volatility. The Smart Cash index continues to move downward while the US Market Index recovered. Until September 2018, when the US markets broke strongly to the downside as the US Fed pushed rates just a bit too far.
With the Custom Smart Cash (Global) Index moving decidedly lower recently, and really starting to break downward, are we nearing a reversion event in the US market? Have the markets transitioned away from the hyper-bullish trending phase and started a new phase of price trending that traders/investors are unaware of?
CUSTOM VOLATILITY INDEX SUGGESTS EXTREME OVERBOUGHT LEVELS HAVE BEEN REACHED IN APRIL/JUNE 2021
This Custom Volatility Index Weekly chart shows how the markets rallied after the November 2020 US elections, through the reflation trade expectations, and pushed even higher in early 2021. The Custom Volatility Index chart peaked in April 2021 and peaked even higher in late June 2021. These peak levels, above 13.5 to 14.0, are historically very high overbought levels on this chart. Whenever the Custom Volatility Index reaches levels above 11 or 12, a moderate price peak usually sets up within a few days or weeks.
There was only one other time in recent history where the Custom Volatility Index level closed above 14, and that was January 2020, the peak price level just before COVID-19 hit the markets.
The most recent Custom Volatility Index highs, above 15, are the highest levels printed on this chart over the past 20+ years. They represent extreme overbought market levels and the Custom Volatility Index has already started to move downward from these peaks.
A move on this Index below 7~8 would represent a fairly strong downside price correction – representing a possible intermediate bottom setup.
A move below 5~6 on this Index would represent very strong selling, likely pushing the markets into a moderate downside price event that may last many weeks or months.
Our research has not confirmed any bearish price setup or any immediate actions to take related to the potential for a peak or rollover price event based on these charts. Our research suggests the US markets may continue to “melt upward” for a period of time as global investors pour into the US equities markets in search of profits and safety. Yet, underlying all of this, we still see some warning signs that the markets are starting to diverge in a way that is somewhat similar to past breakdown events with the Custom Index charts.
We are attempting to present this information so you can become better prepared for the potential price swings related to this type of reversion event and attempt to protect your open trades before any volatility event takes place. There are going to be some really big price swings taking place over the next 24+ months. Make sure you are prepared to profit from these big events. Don’t let yourself get caught in these next cycle phases unprepared.
Author: Chris Vermeulen