For several months the US stock market has had several bearish momentum divergences, both external and internal. External moment can be gauged by price oscillators such as Stochastic. Internal momentum can be viewed by examining advancing issues vs. declining issues.
Since February 2021 the Nasdaq -Advancing – Declining Issues ($NAAD) has had bearish divergences vs. the Nasdaq Composite.
The daily $NAAD chart courtesy of StockCharts.com updates the action of this indicator.
The action of $NAAD since February 2021 fits the definition of a bear market – lower highs and lower lows. Its possible that investors holding only individuals stocks are seeing their portfolio values decline as the main US stock indices make new highs.
But wait, there’s more! Another advance/declining indicator now has a bearish divergence.
The daily NYSE – Advance-Decline Issue ($NYAD) chart illustrates its 2021 action.
On 07/29/21 the NYSE index – StockCharts.com symbol $NYA made a new all-time high, the $NYAD high was on 07/02/21. It’s rare for $NYAD to have a bearish divergence. At the intermediate peaks in 2010, 2011, 2018, and 2020 $NYAD peaked after $NYA. Note, these bullish divergences were false signals, after which the US stock market continued to decline.
The only $NYAD bearish divergence since March 2009 occurred at the 2015 intermediate top along with a $NAAD bearish divergence. After these twin advance/decline bearish divergences there was a global mini crash – August 2015. The subsequent intermediate size correction didn’t conclude until February 2016.
Is there another mini crash or crash on the horizon? It’s possible, but regardless of how fast the stock market could decline – internal momentum is very bearish. The US stock market has occasionally made tops in July or August prior to the main seasonally bearish time zone of September and October.
As we enter August 2021 the US stock market is at high risk for at least a multi-week correction.