July 2021 Analysis – Storm Clouds are Gathering

The S&P 500 composite closed up over 2% higher in July than it did in June.  But underneath that statistic are some troubling data.


When looking across all sizes of companies (S&P100, S&P 400, S&P500, S&P 600) there are negative trends in New Highs vs New Lows, Advances v Decliners, and % of stocks above their 21 day moving average.  The market typically leads the economy by six months.  Economic data is still favoring Expansion versus Contraction, but now only by a score of 5-3 as opposed to 6-2 or better in recent months.


The ETF model triggered BUYs for BNDX (short term bonds), GLD, and XLU (utilities).  This further confirms the defensive case that is indicated by the broader market and economic data.  The model did NOT trigger sells of broad market equity ETFs just yet — they have gone up so much in value there is a bit of wiggle room before taking profits.


Indicators say don’t put new money into this red hot market.  Whether it is renewed concern over COVID or a myriad of other possibilities, underlying elements of the market don’t appear to match the headlines.  And the resurgence of bonds and gold seem to indicate that the opinion is shared by many others.

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