A perfect bear storm could be developing for the US stock market. For several weeks external momentum indicators such as RSI and MACD have had bearish divergences. Internal indicators such as Advance/Decline lines and new 52 -week highs have been shockingly bearish. The main US indices have been making new highs, but underneath the surface many individual stocks are in a bear market.
Long-term sentiment readings are at levels that suggest a major peak is forming. Short-term sentiment readings from the VIX are showing bearish divergences.
In spite pf all this evidence US stock indices have moved higher. Recently the S&P 500 (SPX) moved above significant Fibonacci resistance. My more detailed writings have examined higher resistance points that could be reached later in 2021 or early 2022. However, near-term the chances of at least a correction are very high.
Now two other bearish factors could be coning into play. The first is seasonality. Late August and early September can sometimes have tops just before September to October declines. Examples of this phenomenon occurred in early September 1929, late August in 1987, and a secondary top in September 2000. Just last year the largest correction of the current bull phase began on September 2, 2020.
The second bearish factor comes from outside the stock market. The US pull out from Afghanistan has been a disaster, with a deadline for completely leaving of August 31st. If there are Americans trapped in Afghanistan after August 31st it could lead to a crisis of confidence in US leadership. Lack of confidence could spill over into the handling of the economy.
The SPX appears to be near completion of an Elliott wave -Ending Diagonal Triangle (EDT). After completion of these structures there’s usually a rapid return to the EDT point of origin, in this case the 4160 area.
The risk of at least a multi-week decline is very high. This could be a perfect bear storm.
Long-term sentiment readings are at levels that suggest a major peak is forming. Short-term sentiment readings from the VIX are showing bearish divergences.
In spite pf all this evidence US stock indices have moved higher. Recently the S&P 500 (SPX) moved above significant Fibonacci resistance. My more detailed writings have examined higher resistance points that could be reached later in 2021 or early 2022. However, near-term the chances of at least a correction are very high.
Now two other bearish factors could be coning into play. The first is seasonality. Late August and early September can sometimes have tops just before September to October declines. Examples of this phenomenon occurred in early September 1929, late August in 1987, and a secondary top in September 2000. Just last year the largest correction of the current bull phase began on September 2, 2020.
The second bearish factor comes from outside the stock market. The US pull out from Afghanistan has been a disaster, with a deadline for completely leaving of August 31st. If there are Americans trapped in Afghanistan after August 31st it could lead to a crisis of confidence in US leadership. Lack of confidence could spill over into the handling of the economy.
The SPX appears to be near completion of an Elliott wave -Ending Diagonal Triangle (EDT). After completion of these structures there’s usually a rapid return to the EDT point of origin, in this case the 4160 area.
The risk of at least a multi-week decline is very high. This could be a perfect bear storm.