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Sunday, August 1, 2021

Small Gains Or Losses Continue, But Sell Signals Developing

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Yesterday was a day of small losses but no real damage to the rallies. With the S&P 500 joining the NASDAQ in erasing COVID losses, everyone is waiting for sellers to sweep in and kill this rally but they might be in for a surprise.

The American Association of Individual Investors sentiment is firmly in the bear column, which means bulls may be the one to benefit as it typically plays as a contrarian indicator.

SPX Daily Chart

SPX Daily Chart

With markets back at pre-COVID highs there is no longer a discount for a pandemic which continues to rage and looks like it will get worse before it gets better. If you are happy to buy in this environment, fire away.

Contrarians will see the AAII bearish sentiment as a reason to keep buying, but with market breadth metrics on new ‘sell’ signals–or getting there–the reasons to be buying have slowly been reduced. For example, the ‘sell’ signal in the NASDAQ Summation Index is partnered with a bearish divergence to the parent index.

NASI_Daily Chart

NASI_Daily Chart

So while indices continue to make small gains or losses on a daily basis, the larger picture points to developing new ‘sell’ signals which may be enough to take down the various rallies across indices.

Small Gains Or Losses Continue, But Sell Signals Developing

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