Today 06/30/21 the S&P 500 (SPX) made a new all-time high unconfirmed by the Nasdaq Composite (IXIC) and Dow Jones Industrial Average (DJI) – a “rule of the majority sell signal”. Additionally, the VIX made a higher bottom vs. the SPX new high, a bearish signal. For the last few months there have been several “rule of the majority” and VIX bearish divergences, so far none have held. The US stock market has been persistently plodding higher, while momentum weakens.
The daily Nasdaq – Advance – Decline line ($NAAD) courtesy of StockCharts.com illustrates its action since November 2020.
From 03/23/20 to 02/16/21 the IXIC was the strongest of the three main US stock indices gaining 113.7% vs. the SPX gain of 80.2%. From 02/16/21 to 06/29/21 IXIC has gained 2.5%, the SPX from 02/16/21 to 06/30/21 gained 8.9%. Price action by itself is a bearish warning, what’s happening underneath the surface is even more bearish.
Since the 03/23/20 bottom the NYSE and SPX advanced decline lines have matched price action, $NAAD from early February to 06/14/21 has been diverging from the price. The condition in June is even more bearish as there’s a small double bearish divergence from 06/14/21 to 06/25/21. But wait, there’s more! IXIC high was on 06/29/21, $NAAD has been declining as IXIC moved to a new high. At the 06/29/21 all-time high only 46% of the IXIC stocks were advancing! This is shockingly bearish.
Perhaps the US stock market will continue to plod higher. At some point all bull markets end, maybe the current bearish signals are the prelude to a shockingly deep price drop.