Stock Market Makes Spectacular Run, and It’s Not From the Popular Magnificent Seven



  • Stock market sees rally in areas aside from the Magnificent Seven stocks
  • Small-cap stocks had an impressive performance in the last two trading days of the week
  • The stock market continues to show its bullish strength as we enter earnings season

What a strange trip it’s been!

After breaking out of its June 20 to July 3 sideways movement, the S&P 500 ($SPX) index finally broke out to the upside–until it didn’t. That was on Thursday.

Friday was a different story.

After Thursday’s CPI report, the stock market reacted in a way that suggested investors were rotating out of tech stocks into other areas of the stock market. Could this have been a knee-jerk reaction to the cooler inflation data, combined with the market historically performing well during the first two weeks of July? Or was it something else? Whatever the case, it didn’t last long, which seems to be the stock market’s most typical behavior of late. Reactions tend to be big, but only last a day or two.

This type of environment makes it more difficult for retail traders since it’s easy to get sucked into what others are thinking. That’s why it’s so important to look at the big picture before following the crowd. Remember, there are more algorithms making decisions. This is evident in how the stock market did a complete switcheroo on Friday.

The producer price index (PPI) number was slightly higher than estimates. This led to a 180-degree turn in market sentiment as onvestors returned to large-cap stocks. However, what was different about Friday’s stock market price action was that it wasn’t just the Mag 7 stocks that saw upside movement. The S&P 500 Equal Weighted Index ($SPXEW) broke out of its triangle pattern, piercing through the upper boundary. Small- and mid-cap stocks also rose. And the good ol’ Dow Jones Industrial Average ($INDU) hit an intraday record high, but couldn’t hang on to it high at the close. The same goes for the S&P 500 and Nasdaq Composite ($COMPQ).

Macro View Of the Stock Market

So, the rotation is still in play, and the trading week ends with participation broadening out to different areas of the market. That Thursday’s selloff didn’t continue into Friday shouldn’t be too surprising, given the CBOE Volatility Index ($VIX) is still at relatively low levels.

The bullish sentiment is still intact, as seen by the expansion of market breadth. The daily chart of the S&P 500 below includes the NYSE new 52-week highs and lows in the lower panels.

CHART 1. S&P 500 INDEX BREADTH. The new 52-week highs indicator has been expanding for the last three days.Chart source: For educational purposes.

Note that the number of new 52-week highs has expanded in the last three days. On Thursday, when equities went through a big selloff, the number of NYSE new 52-week highs increased, indicating money was still flowing into equities. It may not have been coming into tech stocks, but it was going somewhere.

The 15-day simple moving average (SMA), a reliable support level since June, indicates that the equities trend is still bullish.

If market breadth expands and the overall trend increases, there’s no reason to panic sell. It’s true that, historically, the stock market performs well during the first two trading weeks of July and slows down during the second two weeks of the month. But, at this point, it’s best to go with the flow, which currently looks like the trend—despite short-term turbulence—is up.

Small Cap Stocks Are Taking Off

The action in small-cap stocks is particularly interesting. The S&P 600 Small Cap Index ($SML) has broken above a strong resistance level with expanding breadth (see chart below).

CHART 2. S&P 600 SMALL CAP STOCKS. Small-caps were in the spotlight in the last two days of the trading week. Market breadth expanded significantly. Will there be a follow-through next week?Chart source: For educational purposes.

The percentage of S&P 600 stocks trading above their 200 day moving average is above 66%, while the Advance-Decline Percent and Advance-Decline Volume Percent have been in positive territory for the last three trading days.

The bottom line: The broader stock market indexes are trading at or close to all-time highs, small-caps are breaking above a resistance level, and volatility is at relatively low levels. These are all positives for the financial market until signs show otherwise.

Earnings Season Kicks Off

Earnings season kicked off on Friday with JP Morgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) reporting. Investor reaction was mixed even though all three beat estimates. JPM’s stock price closed lower by 1.21%, C declined by 1.80%, and WFC was the worst performer in the S&P 500, its stock price declining almost 6%.

Next week is thin on US economic data. The focus will be more on earnings, with mostly banks and energy companies reporting. The market seems to be shifting its behavior, so it’s important to focus on the price action and act accordingly. It’s difficult in the summer months when everyone likes to take vacations; we’re trying to make it easier for you by sharing our charts. So make sure to click on the live charts and add them to your ChartLists!

  • S&P 500 closed up 0.87% for the week, at 5615.35; Dow Jones Industrial Average up 1.59% for the week at 40,000.90; Nasdaq Composite closed up 0.25% for the week at 18,398.45
  • $VIX down 3.56% for the week closing at 12.46
  • Best performing sector for the week: Real Estate
  • Worst performing sector for the week: Communication Services
  • Top 5 Large Cap SCTR stocks: Insmed Inc. (INSM); Carvana Co. (CVNA); Super Micro Computer, Inc. (SMCI); NVIDIA (NVDA); MicroStrategy, Inc. (MSTR)

On the Radar Next Week

  • June Retail Sales
  • Earnings from BlackRock Inc. (BLK), Goldman Sachs (GS), Bank or America Corp (BAC), Charles Schwab Corp. (SCHW), Netflix (NFLX), Alcoa Corp. (AA), Haliburton Co. (HAL), and Schlumberger NV (SLB), among many other companies
  • Fed speeches from Chairman Powell, Daly, Kugler, and others
  • July MBA 30-year Mortgage rate
  • June Housing Starts
  • June Industrial Production

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Jayanthi Gopalakrishnan

About the author:
Jayanthi Gopalakrishnan is Director of Site Content at She spends her time coming up with content strategies, delivering content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was Managing Editor at T3 Custom, a content marketing agency for financial brands. Prior to that, she was Managing Editor of Technical Analysis of Stocks & Commodities magazine for 15+ years.
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The Chart to Help Navigate a Summer Market Top



  • Value sectors have been consistently underperforming the benchmarks since the April market low
  • Technology has outperformed the S&P 500 as well as other growth sectors in 2024
  • Defensive sectors like Utilities and Consumer Staples may be the most important to watch, as they can demonstrate investor uncertainty

A thorough analysis of seasonal trends for the S&P 500 over the last 12 years provides two key takeaways: there is usually a major market top in the summer, and there is often a major market low in the fall. So, on top of simply analyzing the chart of the S&P 500, what else can we do to anticipate and validate a potential market top?

I would suggest that sector rotation could be key here, because the current uptrend is being driven by a very small number of sectors (actually just one, to be completely honest). Any adjustment to that configuration would constitute a “change of character” for this market, and most likely coincide with the summer market top many are expecting.

While the daily chart of the S&P 500 appears fairly consistent in 2024, aside from a two-week drop in early April, we have to remember that this market had a very different complexion before and after that market low. Before the April pullback, this was a broad advance, with most sectors thriving as the “everything rally” propelled the equity benchmarks higher. In May and June, and now into July, this has been more of a narrow rally, with a small number of mega-cap growth stocks thriving while most stocks have struggled.

I love the simplicity of the RRG graph in visualizing the rotation of the 11 S&P 500 sectors. The weekly RRG shows that it’s clearly been “the technology show” for weeks, as the XLK is the only sector in the Leading quadrant and moving up and to the right. Now, let’s take a deeper look at the relative performance of the S&P 500 sectors in three buckets: growth leadership, value leadership, and defensive sectors.

Defensive sector performance is one of the seven items on my Market Top Checklist. Want to see the other six, and get help navigating a potential summer market top? Check out our Market Misbehavior premium membership and use code STOCKCHARTS for 20% off your first 12 months!

Value Sectors Thrived in Q1, Struggled in Q2

In this series of charts, each line represents a simple ratio of the performance of one sector versus the S&P 500 index. If the line is going up, that means the sector has been outperforming. If the line is trending lower, that means the sector underperformed during that period.

We can see here that the Industrial, Financial, Materials, and Energy sectors have all underperformed the SPX since the April market low. While these sectors all were outperforming in Q1, all four of them are at or near new relative lows as we enter Q3. While the S&P 500 and Nasdaq have been pushing higher, these sectors have not been a part of that success story!

Technology is the Only Sector with Strong Relative Strength

From mid-April to early July, only one of the S&P 500 sectors has actually managed to outperform the benchmark in a meaningful way, that being Technology. While the Consumer Discretionary sector has popped higher in recent weeks driven by AMZN and TSLA, and Communication Services has basically performed in line with the S&P 500, Technology has had the strongest run of relative performance.

Given the dominance of the AI trade in 2024, it’s no surprise how Technology is clear outlier in terms of relative performance. And if there’s one thing I’ve learned from a career as a technical analyst, it’s to stick with winning trades as long as they keep winning!

Defensive Sectors May Be the Most Important to Watch

So that leaves us with three defensive sectors which don’t tend to attract flows unless investors are afraid to own anything else. And all three have underperformed over the last 12 months, reinforcing the bullish sentiment still evident in the stock market.

Utilities stocks had a brief rally in April and May, during a period when most of their earnings calls were focused on power needs for artificial intelligence. But it didn’t take long for that short-term phase to end, and Utilities once again lagged behind the major equity benchmarks.

This chart is one that I feature on my Market Top Checklist, because improvement in the relative strength of defensive sectors suggests that institutional investors are trying to hide out during a period of market uncertainty. And while these three sectors have occasionally outperformed during a bull market phase, their relative lines usually only turn higher during a bear market environment.

For now, the sector relative charts tell the story of a narrow market advance driven by Technology. I would argue that this same set of charts can tell you much of what you need to know to navigate a potential leadership rotation and even a likely market top in the summer months of 2024!



P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!

David Keller, CMT

Chief Market Strategist

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

David Keller

About the author:
David Keller, CMT is Chief Market Strategist at, where he helps investors minimize behavioral biases through technical analysis. He is a frequent host on StockCharts TV, and he relates mindfulness techniques to investor decision making in his blog, The Mindful Investor.

David is also President and Chief Strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness. He combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities and enrich relationships between advisors and clients.
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TAG, You’re It! Rotation Away From Semiconductors Benefiting These Stocks

One hallmark of secular bull markets is rotation. When leading stocks, sectors, and industry groups falter, there needs to be others that grab the baton and help to keep the bull market intact. Semiconductors ($DJUSSC) have been the clear leader in the stock market for years, but especially since the end of October 2023, when the group embarked on its most powerful rally of the 21st century. Below is a 25-year chart of the DJUSSC. Pay particular note to the bottom panel, which reflects a 170-day rate of change (ROC), or roughly 8 months. Compare this most recent 8-month rally to other 8-month periods throughout this century:

The 8-month ROC recently hit 115%, which is the biggest rally EVER on this index. And if you look at the price chart, we should at least CONSIDER the possibility that this is a parabolic top. This is how these form – with tremendous amounts of positivity and what could end up being unsustainable revenue and EPS growth. The entire group is being priced off of record revenue and earnings growth and for perfection. Should traders even get a HINT that future growth might be lower than what we’ve been experiencing the past couple quarters, the semiconductor trade could be weak for months, possibly quarters.

In a secular bull market, however, it’s rotation that keeps our major indices in uptrends. Where might the new leadership emerge from if semiconductors do in fact weaken? Well, I think it’s already showing here:


A breakout has already been made here. Yes, we’re a bit overbought, but nothing like how overbought technology (XLK) has been. One industry that typically revs up when the XLC is hot is internet ($DJUSNS). This group remains in the midst a major rally:


The red-shaded area highlights the fact that, on relative basis, internet hasn’t been leading the past couple months. The breakout this week, though, might indicate renewed relative strength. It’s also noteworthy that since the financial-crisis low in 2009, internet stocks have been leaders during July, rising in 14 of the past 15 years:

The average July return has been 6.8%, more than double any other calendar month since 2009.

There’s one other key sector, consumer discretionary (XLY), that could play a big leadership role over the second half of 2024. This group has been a drag on U.S. equities, but it really hasn’t been felt that much, because the XLK has been so strong. NOW is the time, however, when U.S. equities could be looking for rotation to and leadership from this sector:


Relative strength has begun to turn higher over the past two weeks and this relative strength could be fueled much further by an absolute breakout in the price of the XLY near the 184-185 level.

It’s been amazing what a stock like NVIDIA Corp (NVDA) has done for semiconductors, technology, and our major indices. But if NVDA struggles on a relative basis, which it certainly deserves, I see 3 critical stocks not named Apple (AAPL) and Microsoft (MSFT) that could swoop in and “save the day” for our major indices, especially the NASDAQ 100.

TAG, You’re It!

Ok, so if we’re going to need a replacement, temporary or otherwise, for a leadership stock like NVDA, which stock(s) might we look to for future leadership?


Relative to its peers, GOOGL hit rock bottom in early March. Since then, GOOGL has been significantly outperforming its internet peers and is currently awaiting another one. From mid-May to mid-June, GOOGL didn’t go anywhere. Semiconductors were flying, but GOOGL took a back seat. Now that it’s latest breakout to all-time highs have occurred, it certainly appears as though GOOGL is well-prepared to take the baton for the next leg of this secular bull market.


I don’t know if there’s a better stock anywhere right now. AMZN is absolutely one of my favorites. Discretionary stocks have been lagging most of the year and AMZN is the top holding in the XLY. AMZN just broke out, after consolidating, on excellent volume and I expect the stock to be a leader during the 2nd half of 2024. AMZN’s best calendar month during this secular bull market (since 2013) has been July – check it out:

AMZN has climbed more often in November, but its actual average monthly performance in July (+7.3%) easily surpasses all other months. So we have technical conditions turning bullish just as we move into, arguably, AMZN’s best month.


Ok, I get it. TSLA’s been disappointing for sure. But there are improvements on the chart that suggest TSLA could be on the verge of a much bigger run. We do need to see one more key price level cleared to give me more confidence of a big rally:

I see rather significant improvement in momentum (PPO), volume trends, and relative strength. TSLA, relative to its auto peers, just hit nearly a 4-month high. This, combined with other technical improvements, tells me that we could just be getting started here. I do want to see gap resistance near 208 cleared, because after that, I don’t see any major resistance until 265 or so.

There’s one more thing to like. Over the past 6 years, June, July, and August have posted AMAZING average returns. This time of the year is when TSLA has really shown extreme absolute and relative strength. Check out this seasonality chart:

The average return during June, July, and August has been a STAGGERING and BLISTERING 43%!!! That’s the AVERAGE since 2019. So if TSLA is going to get the job done, history tells us that NOW is the time.

Remember, the sustainability of secular bull markets is not much different than the game we all played as kids. Hey AMZN, GOOGL, and TSLA! You’re IT!!!!

I published my first StockCharts YouTube video in quite awhile and it’s great to be back! I spent a lot of time discussing the beauty of secular bull markets and how rotation keeps them alive, providing areas to keep a close eye on for future leadership. Please be sure to check out the video HERE and also be sure to hit that “Like” button and “Subscribe” to the StockCharts YouTube channel! I’d really appreciate the support!

Happy trading!


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Gilead’s Game-Changer: What You Need to Know About the Stock



  • Gilead Sciences’ stock price got a boost from positive results of a late-stage trial of its HIV drug
  • While Gilead still needs to replicate its results and seek FDA approval, this may be a good time for traders and investors to get in early on a potentially revolutionary product
  • If you’re looking for a bottom-floor entry, there are key technical levels to watch in GILD’s stock chart

Gilead Sciences’ (GILD) new HIV prevention shot, lenacapavir, hit it out of the park in a late-stage trial, showing 100% effectiveness. 2,000 women participated in the trial, and none of them contracted HIV, signaling a potential game-changer for HIV prevention. All Gilead has to do now is to replicate the results once more before seeking FDA approval.

If Gilead is successful, lenacapavir could be available by late 2025.

How Did the Market React?

Shares of GILD jumped 7%, bucking a deep six-month downtrend. Looking at StockCharts’ Symbol Summary, GILD also popped up on several positive scans (see the image of the StockCharts’ Predefined Scans below).

Gilead looks promising, but it’s still a waiting game. Will Gilead replicate its results? It’s possible, but nobody knows until it happens. Will the FDA give lenacapavir the green light? Again, nothing’s guaranteed.

But does the investment’s potential upside significantly dwarf the downside (as long as you mitigate your risk and manage your position size)? It’s highly likely. Gilead is on the verge of something huge. Many traders and investors won’t wait for FDA approval to jump on what might be the next big breakthrough in HIV prevention.

If you feel this opportunity is too compelling to ignore, here’s what you must watch.

The Macro Picture

First, it’s important to remember that biotech companies like GILD are often on the cutting edge of medical science, making them highly speculative investments. To appreciate how fickle and risky their stocks can be, take a look at the two boxes in GILD’s weekly chart below.

CHART 1. WEEKLY CHART OF GILEAD SCIENCES (GILD). The rapid surge in October 2022 was due to the FDA approval of two of GILD’s products. The steep fall in GILD’s stock price in 2024 was due to setbacks in the late-stage trial of a cancer treatment drug.Chart source: For educational purposes.

The surge within the blue box was driven by two of GILD’s key (FDA-approved) products—Biktarvy (a daily HIV treatment drug) and Trodelvy (a cancer treatment drug)—both of which saw substantial sales increases. Note how its SCTR score jumped above the 90 line. Within any SCTR universe, the top 10% of performers typically rank within a range of 90 to 100. The bottom 10% rank between 0 to 10, highlighting weakness in performance levels. That’s what happened next to GILD’s trend.

You can see this in the red box. At the start of 2024, Gilead’s shares fell due to setbacks in their late-stage trial of Trodelvy, which failed to show that it can improve patients’ overall survival rates when compared to other existing treatments. As you can see, the SCTR score was close to zero. And even after Thursday’s 7% surge, the SCTR, though improving, is still incredibly low at 30.

If GILD is poised to become the “next big thing,” does the 30 score indicate a bottom-floor opportunity to jump in?

Here Are the Levels to Watch

Take a look at the daily chart of GILD below.

CHART 2. DAILY CHART OF GILEAD SCIENCES. From strong downtrend to a surprise upside reversal. Is it time to buy?Chart source: For educational purposes.

A few points to note about the daily chart are as follows:

  • GILD exploded above its 50-day simple moving average (SMA) on high momentum. Before this, the 50-day SMA has acted somewhat as a dynamic resistance level since the beginning of the year.
  • The Chaikin Money Flow (CMF) confirms the shift in buyer sentiment; it’s above the zero line, indicating a rapid shift from selling to buying pressure.

If you’re looking to enter a position in GILD early on, be aware of the potential support levels below $68 and $66 should prices pull back (there’s no indication that it will at the moment). The first resistance level GILD needs to surpass is above $70. This level was tested several times last year and served as an important support level this year until it was finally broken in April.

The next important level of resistance sits right below $75. Not only does this mark March’s swing high point, but the concentration of volume surrounding this congestion range (see the Volume-By-Price indicator) warns that it might prove a significant zone of contention between the bulls and bears. If price clears that level, and if GILD’s trial results continue to look promising, then the path toward (and beyond) $79 might be smoother sailing (to which you can expect some resistance and profit-taking).

The Takeaway

Gilead Sciences (GILD) is making headlines with its new HIV prevention shot, lenacapavir, showing 100% effectiveness in a major trial. If it can replicate its results, the medication has a clear shot at FDA review. If that goes well, the medication can hit the market as early as 2025. GILD has been trending downward for most of the year, with its SCTR score rising from below 10 to a weak 30. If the upcoming trials succeed, lenacapavir could revolutionize HIV prevention and offer significant returns. However, if it fails, tracking the stock’s performance will be straightforward. In short, this could be a chance to get in early on a potential game-changer.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Karl Montevirgen

About the author:
Karl Montevirgen is a professional freelance writer who specializes in finance, crypto markets, content strategy, and the arts. Karl works with several organizations in the equities, futures, physical metals, and blockchain industries. He holds FINRA Series 3 and Series 34 licenses in addition to a dual MFA in critical studies/writing and music composition from the California Institute of the Arts.
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Investing with the Trend: Conclusions

Note to the reader: This is the twenty-fifth and final in a series of articles I’m publishing here, taken from my book, “Investing with the Trend.” Hopefully, you will find this content useful. Market myths are generally perpetuated by repetition, misleading symbolic connections, and the complete ignorance of facts. The world of finance is full of such tendencies, and here, you’ll see some examples. Please keep in mind that not all of these examples are totally misleading — they are sometimes valid — but have too many holes in them to be worthwhile as investment concepts. And not all are directly related to investing and finance. Enjoy! – Greg

Technical analysis used to be greeted with as much enthusiasm as Jeffrey Skilling addressing the Better Business Bureau, and was often referred to as a black art. It still is often called charting, which is not unlike referring to space flight as flying. Fortunately, those times have passed. The following quote from the Reverend Dr. Martin Luther King could easily be applied to a rules-based trend-following investment model, substituting model for man (and it for he).

The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy. — Dr. Martin Luther King

Near the beginning of this book, I stated that this was not a storybook, but a compilation of ideas, concepts, and research from almost 40 years in the markets, primarily as a technical analyst. We started out by uncovering numerous facts that are routinely used in modern finance that simply do not meet the test of rigorous mathematics or logical scrutiny. Many things in finance are truly fiction or terribly flawed. Next, we moved into a section that dealt with market facts, which were basically about how markets work and after covering the fiction and flaws, appeared relatively simple but were based on sound principles of logic and reason. A large section of the book introduced research on risk, and hopefully redefined what risk is. Research that used a simple process of filtered waves and time to determine if markets trended was presented across a wide range of data sets.

The final part of the book, after hopefully convincing you that markets are unpredictable and that there are risk reduction techniques such as trend following that will make you a successful investor over the long term, introduced a rules-based trend-following model affectionately called “Dance with the Trend.” Many examples of how to measure what the market was doing, with variable risk categories based on that weight of the evidence, were presented. Security ranking and selection methods were introduced along with a sample set of rules and guidelines to follow. In the end, hopefully, you realized that a rules-based model, along with the discipline to follow it, will help remove the human subjectivity and those horrible human emotions that we all have.

The story about Abraham Wald’s work as a member of the Statistical Research Group during World War II can shed some light into money management (widely disseminated as Abraham Wald’s Memo). Wald was tasked with damage assessments to aircraft that returned from service over Germany, and determined which areas of the aircraft structure should be better protected. He found that the fuselage and fuel systems of returned planes were more likely to be damaged than the engines. He made a totally unconventional assessment: Do not focus on the areas that sustained the most damage on these planes that returned, but focus on the essential sections that came back relatively undamaged, such as the engines. By virtue of the fact the planes returned, the heavily damaged areas did not contribute to the loss of the aircraft, but losing the engine would, and therefore would not return. Hence, focus on more armor around the engines. For an airplane in battle, protect the essential parts and it will fly again.

Investing is not unlike an airplane in battle: Protect the assets from destruction, such as large losses (drawdown), and the investor will live to invest again. Most of modern finance is focused on the nonessential parts.

Existing theories about the behavior of stock prices are remarkably inadequate. They are of so little value to the practitioner that I am not even fully familiar with them. The fact that I could get by without them speaks for itself. — George Soros, Alchemy of Finance, 1994

As stated previously and often, my critique of much about modern finance is without offering any solutions. When someone complains to me about something, my usual response is that they need to offer a solution to validate their complaint. I am guilty of violating that principle in this book. Gaussian statistics are used extensively in finance because anyone who has taken mathematics, engineering, finance, or economics has learned them. Plus, they are relatively simple to understand and, while they have shortcomings, they do provide some understanding about distributions of market data, but never about the extremes.

There are statistical techniques that deal with this shortcoming simply referred to as power laws. A number of papers present sufficient evidence to this concept. An Internet search for “power laws in finance” will provide you with a host of works. You will quickly see that Benoit Mandelbrot started something.

For those who still believe that markets do not trend, here is a simple attempt to move you away from that belief. Trends exist because of the herding characteristics of humans. For example, limit orders and stop loss levels are usually set based on an incremental measure from a recent price. Robert Prechter provides an exceptional paper on this subject.

Financial Advice

It is far from the purpose of this book to get into financial advice, other than to blatantly state, “If you cannot control your emotions when making investment decisions, then seek help.” Remember, experts cannot predict the market any better than anyone else, but they can offer a systematic approach to investing. They will assist in your switching/abandoning of strategies for whatever reason and truly help with your behavior when it comes to the markets. Usually, they will also help your accountability, so that you continue to make periodic contributions to your portfolio. Outside objectivity is also a benefit, as the advisor can slow you down on your dash to follow the herd, and cause you to stick to your plan.

The sad part is that most investors will wait too late in life to realize they need help. Wanting to act rational because you know you should, and doing so, are often far apart. Here are some simple questions to ask a potential advisor: how do you manage risk, and how do you make investment decisions? Look for answers that involve a process.

Remember: It is not important to be right every time, but it is important to be right over time.

A return of your money; or a return on your money.

Performance tells you nothing about the risks assumed to attain that performance, risks that tend to show up later. It is better to manage risk than to just measure it.

According to William Bernstein, successful investors need:

  1. An interest in the process.
  2. An understanding of the laws of probability and a working knowledge of statistics.
  3. A firm grasp of financial history.
  4. The emotional discipline to execute their planned strategy faithfully, come hell, high water, or the apparent end of capitalism as we know it.

A Compilation of Rules and Guidelines for Investors

Over the years, I have collected lists of rules, guidelines, steps, and so on written by various individuals for various reasons. Most of them were created by folks after they had spent decades in the business and were sharing some things they not only learned over that time, but also believed.

Robert Farrell ‘s 10 Rules for Investing

Robert Farrell was Merrill Lynch’s technical analyst for many years. Here are his 10 rules for investing:

  1. Markets tend to return to the mean over time. When stocks go too far in one direction, they come back. Euphoria and pessimism can cloud people’s heads. It’s easy to get caught up in the heat of the moment and lose perspective.
  2. Excesses in one direction will lead to an opposite excess in the other direction. Think of the market baseline as attached to a rubber string. Any action too far in one direction not only brings you back to the baseline, but leads to an overshoot in the opposite direction.
  3. There are no new eras—excesses are never permanent. Whatever the latest hot sector is, it eventually overheats, mean reverts, and then overshoots. Look at how far the emerging markets and BRIC nations ran over the past six years (as of 2013), only to get cut in half. As the fever builds, a chorus of “this time it’s different” will be heard, even if those exact words are never used. And of course, it—Human Nature—never is different.
  4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways. Regardless of how hot a sector is, don’t expect a plateau to work off the excesses. Profits are locked in by selling, and that invariably will lead to a significant correction, which eventually comes.
  5. The public buys the most at the top and the least at the bottom. That’s why contrarian-minded investors can make good money if they follow the sentiment indicators and have good timing. Watch Investors Intelligence (measuring the mood of more than 100 investment newsletter writers) and the American Association of Individual Investors survey.
  6. Fear and greed are stronger than long-term resolve. Investors can be their own worst enemy, particularly when emotions take hold. Gains “make us exuberant; they enhance well-being and promote optimism,” says Santa Clara University finance professor Meir Statman. His studies of investor behavior show that “Losses bring sadness, disgust, fear, regret. Fear increases the sense of risk, and some react by shunning stocks.”
  7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names. Hence, why breadth and volume are so important. Think of it as strength in numbers. Broad momentum is hard to stop, Farrell observes. Watch for when momentum channels into a small number of stocks (“Nifty 50” stocks).
  8. Bear markets have three stages—sharp down, reflexive rebound, and a drawn-out fundamental downtrend. I would suggest that as of August 2008, we are on our third reflexive rebound—the January rate cuts, the Bear Stearns low in March, and now the Fannie/Freddie rescue lows of July. Even with these sporadic rallies end, we have yet to see the long drawn out fundamental portion of the Bear Market.
  9. When all the experts and forecasts agree—something else is going to happen. As Stovall, the S&P investment strategist, puts it: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?” Going against the herd, as Farrell repeatedly suggests, can be very profitable, especially for patient buyers who raise cash from frothy markets and reinvest it when sentiment is darkest.
  10. Bull markets are more fun than bear markets, especially if you are long only or mandated to be fully invested. Those with more flexible charters might squeak out a smile or two here and there.

James Montier (GMO)

Risk isn’t a number and it isn’t volatility, it’s the permanent impairment of capital.

Volatility creates the opportunity.

Leverage cannot turn a bad investment into a good one, but it can turn a good one bad.

Leverage limits staying power.

Often financial innovation is often just leverage in thinly veiled disguise.

James Montier ‘s Seven Immutable Laws of Investing

  1. Always insist on a margin of safety.
  2. This time is never different.
  3. Be patient and wait for the fat pitch.
  4. Be contrarian.
  5. Risk is the permanent loss of capital, never a number.
  6. Be leery of leverage.
  7. Never invest in something you don’t understand.

My Rules

  1. Turn off the TV and stop surfing the Internet for advice (stop the noise).
  2. Develop a simple process, one that you can explain to anyone (mine is trend following).
  3. Create a security selection process based on momentum.
  4. Devise a simple set of prudent and reasonable rules and guidelines.
  5. Follow your process with discipline; without it, you will fail.
  6. If you do not have the discipline to do this, seek professional help from someone who does.
  7. Do not be upset with yourself if you do not have the discipline at times; be proud of yourself for recognizing it.
  8. Do not confuse luck with skill.
  9. Listen and learn from the market—it is always right.
  10. Read this list often.

It is never the indicator or the model; it is the user of those tools who is probably at fault.

“If I’ve learned a little

My Grandad told me so

It ain’t so much the fiddle,

It’s the man who holds the bow.”

Co-written by my favorite Texas musicians, John Arthur Martinez and Mike Blakely

Secular Markets and the Efficiency Ratio

I want to show you that a number of the indicators/measures discussed in this book have other uses. For example, the Efficiency Ratio mentioned in Rules-Based Money Management – Part 4 used to select the most efficient buy candidates can also be used to confirm market action, such as in Secular markets. Figure 17.1 shows the weekly Dow Industrials with the secular markets identified (only secular bears identified with no identification for the secular bulls) and the four-year Efficiency Ratio. In other words, how efficiently did the market move over a four-year period? You can see that secular bull markets are much more efficient (higher ER) than secular bear markets. This result is not surprising, but at least is now somewhat quantified.

The Rules-Based Trend-Following Model in October 1987

Okay, I always get asked this — how did the Dance with the Trend model perform on Black Monday, October 1987?

First of all, this model was not in existence until the early 1990s, but I have data back to the late 1970s to show how it would have performed. As you can see, the S&P 500 is the top plot in Figure 17.2, and the Weight of the Evidence is in the lower plot. The Weight of the Evidence began to decline the first week in September and was below 50% by September 10, 1987. While stops in the zone below 50% are extremely tight, it is highly probable that any money management at this time would be fully defensive in cash or cash equivalents. And this is over a month prior to the crash. Notice how just prior to the crash the Weight of the Evidence popped up slightly, then dropped quickly prior to the crash.

The Flash Crash of May 6, 2010

Big market declines rarely occur while the market is making new highs. When one is a trend follower, it means they never get out at the top and never get in at the bottom. A fact of life and one that is only apparent in the remarkably beautiful world of hindsight. Often, I get a question along the lines of how do you handle panic selloffs, such as 1987 and the May 2010 Flash Crash. The year 1987 was explained previously. The Flash Crash on May 6, 2010, was a really scary day. The good news is that the market had peaked on April 23, 2010, and had been in a downtrend for two weeks prior to the Flash Crash, which I believe most have forgotten.

In Figure 17.3, the April 23 peak is denoted by point A and the Flash Crash of May 6 by point B, nine trading days later. The Weight of the Evidence dropped from 100 into the second zone two days prior to May 6. Recall that when a zone changes, so do the stops on all holdings. This tightening of the stops took the holdings down to only one that remained on the morning of May 6. Recall also that all selling is done only when the individual holding hits its stop. The last holding was sold the morning of May 6 because it hit its stop.

Luck? Of course there was some luck involved. If the crash had occurred a few days earlier, most of the holdings would have gotten clobbered. However, the trend peaked nine days before the Flash Crash and the system worked.

This event prompted some research into market action prior to crash days. The results were strong evidence that rarely do markets crash while making new highs. February 27, 2007, was about the only time it happened, as of 2013.

In today’s complex markets, money management must remain focused on process, which helps control their investment philosophy and the nature of their client base. Controlling the process of investing is absolutely critical for long-term success in the markets. And my final quote from James Montier: “when athletes were asked what went through their minds just before the Beijing Olympics, the consistent response was a focus on process, and not outcome.” Don’t forget that.

Final Observations

I want to avoid, even though it is tempting, repeating much of what I have elaborated on in this book, but some of the pontifications are so important in my opinion that I’m going to repeat a few. The goals of this book are numerous.

  • Understand how markets work and how they have worked in the past.
  • Understand the plethora of information that exists in modern finance that is just wrong.
  • Understand how the tools of modern finance work and their shortcomings.
  • Understand that you, as a human being, have terrible natural investment tendencies.
  • Understand what risk is.
  • Understand that most markets trend and those trends can be identified.
  • Understand that there are ways to use technical analysis to invest successfully over the long term.
  • And finally, understand that there are many techniques for investing, but until you grasp full control over your emotions and have exemplary discipline, you will probably fail. Failure is how one can learn—hopefully.

Although this has been alluded to throughout this book, I’m going to put it as simply as I can. A rules-based trend follower never asks the questions: Which way is the market going to go? Are we near a top, a bottom, and so on? A trend follower doesn’t need to know and shouldn’t actually care other than inherent curiosity. We know that increasing capital by participation in up markets is favorable, there is still some joy associated with being totally defensive during down markets while most others are being clobbered. Although that may sound cruel to some, it alleviates some of the frustration of usually underperforming in volatile bull moves. It also falls nicely into a number of the behavioral traits outlined in The Hoax of Modern Finance – Part 8.

I have injected many personal opinions in this book, most of which are opinions formed by learning about the markets over the past 40 years, and not all those periods were good — in fact, many were not good. I paid high tuition to learn some things. Once I learned to get my gut feelings out of the process, things got steadily better. I have challenged many things in modern finance and a few things in technical analysis. Again, just opinions, as I cannot offer formal proof either way. There are two recommended reading lists in the appendix if you are just starting out, or if you are an old timer, maybe you will enjoy those recommendations also. And now:

Dance with the Trend!

Thanks for reading to the end! Want to own a physical copy? The book is for sale here.

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Gold Top? Focus on These Potential Price Objectives



  • Gold reached its triangle breakout price objective
  • Since reaching the price objective after the triangle breakout, gold has been in a distribution phase
  • If gold breaks lower, it could fall by 10–12%

In early 2024, gold reached the price objective derived from the breakout of the large triangle that had evolved beginning in early 2022. Upon reaching the area of the objective, a classic buying climax halted the trend.

The subsequent trading range has been characterized by distribution. In the event of a breakout lower, the amount of distribution (cause) derived from the Point and Figure (P&F) count suggests a downside objective of 10–12% lower is reasonable. But will it reach this price objective?

In this article, we’ll make a technical assessment of the daily and weekly charts, provide evidence suggesting that the range is likely distribution (Wyckoff), and show how to assess potential price objectives using point and figure charts.

Weekly Chart of Gold


In November 2023, gold broke above lateral resistance developed along the $2079–$2085-per-ounce area.

  • The lateral resistance and rising support generated by the trendline (A) defined a large triangle.
  • In anticipation of a breakout, it seemed appropriate to determine upside price objectives.
  • I prefer to use multiple techniques to generate objectives. I particularly like Fibonacci extensions and retracements, point & figure chart projections, and price channels.
  • I look for confluences of multiple techniques and combine them with traditional chart support and resistance to generate objectives.

Objectives are useful in three ways:

  • To ensure that reward exceeds risk to the stop by at least 3 to 1.
  • To monitor for trend-ending action around those objectives.
  • To adjust existing trades as those objectives are reached.

Importantly, the original breakout from the 2079–2085 triangle generated a price objective of 2540. That objective is derived thusly:

  • 2079 (initial point of the triangle ) – 1618 (bottom of the pattern) = 461 points. 
  • 461 points added to the triangle top (2079 + 461) = 2540 objective.

I believe triangle price objectives are areas to monitor for resistance rather than discrete points.

Additional objectives can be derived using Fibonacci Objectives derived from the 1618 – 2085 – 1824 price sequence. 

  • 1.382% = 2461 & 1.618% = 2570.
  • Soon after the breakout from the triangle, a confluence of objectives could be calculated: 2461, 2540, and 2570.
  • Potential objectives can also be derived by channelizing the price behaviors.
  • I prefer overbought and oversold as defined by price channels than by momentum (i.e. stochastics, RSI or MACD).

In March, the market broke out of the triangle and, over the next several weeks, marked up to 2454.

  • The combination of overbought in the channels and the 1.382% Fibonacci objective (a bit short of the 1.618% objective), and in the area of the triangle objective, clearly defined an area of the chart where supply was likely to develop.
  • As the price approached the objective confluence, it had already exceeded the two main channel tops at A1 (derived from trend line A) and B1 (derived from trend line B), and overbought conditions had developed in momentum measures, like RSI and stochastics.
  • When I see resistance confluences of this nature, I begin to monitor for trend-ending action (for instance, a buying climax and secondary test pattern).
  • Despite very bullish news and strongly bullish sentiment, a classic buying climax (BC) developed. Note the much higher than normal volume that occurred on a wide range bar that set a significant new high, but closed near the bar’s low.
  • Buying climaxes typically resolve into trading ranges. Trading ranges can be distribution (marking a long term top) or re-accumulation (a pause before continuing higher).
  • Over the next three weeks, the market pulled back to 2285, then rallied in a secondary test (ST). The secondary test was completed by a wide price spread bar that closed near its low. This is the juncture at which I became particularly interested in the pattern of price and volume and the potential downside objectives. 
  • The price-volume relationships should point toward either distribution or re-accumulation.

Generally speaking, there are only two outcomes to the range: either the buying climax is short-term, and the market will move higher after a period of re-accumulation, or the buying climax will offer a significant top, leading to a significant markdown once supply is completely distributed to weak hands.

This is when I shift attention to the daily perspective chart to closely monitor price spread and volume relationships.

Daily Chart of Gold


Without going into a detailed Wyckoff price/volume analysis, I will make the case that it is likely that the range is one of distribution. Note the appearance of supply (inside the oval) just before the buying climax at 2449, the lower volume and angle of attack on the rally to 2454 (secondary test), and the expansion of volume and close near the low of the price spread (last arrow). Rallies inside the range are being aggressively sold as strong hands distribute to weak hands. Additionally, much of the price action has developed below the midpoint of the range.

With the assessment of distribution, I thus need to begin planning for a bearish breakout. The first part of the plan is to arrive at some estimation of how much downside potential exists.

  • One of Wyckoff’s main principles is “The Law of Cause and Effect.” Cause refers to the amount of accumulation or distribution that occurs inside a range. Effect is the extent of the move out of that range.
  • The accumulation or distribution inside a range determines how far the breakout of the range will move. In other words, the time spent in the consolidation is related directly to the distance of the subsequent move. 
  • Point and figure (P&F) charts are used to determine the extent of the cause and generate initial price objectives out of the range.

Gold P&F One-point Boxes X 3 Box Reversal


Trading ranges represent areas of the chart where large numbers of shares change hands, often moving from strong hands to weak hands. This is why a consistent relationship exists between the length of a trading range and the size of the subsequent move. This is particularly true in very liquid, heavily-traded markets.

There is no end to the debate regarding which points should be used to define counts. I like to keep it simple. I look for the walls of the range, count across the two walls, and then project from the low. Others would use the smaller count derived from the two walls between the buying climax and the secondary test. After all, I mostly use the objectives to help define risk vs. reward and to help draw my attention to the chart as the area of the objectives is reached.

Assuming the current range does not extend and I am correct in my assessment of distribution, the count projects enough cause to suggest downside of 2010–2030. If the range extends, the count will lengthen, and the price objective grows greater. With this view, I should be able to fashion a trade well in excess of 3-1 (minimum) risk reward. I suspect that when a trade sets up, that risk-reward will be in excess of 10-1, as a stop versus my entry is likely to be less than 1%. If I am wrong and the range is one of re-accumulation, the same method can be applied to a breakout higher.

Please note that this is not a trading recommendation. Entry will be determined by price action and trade implementation techniques that I hope to present in future pieces.

Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.

Good Trading.

Stewart Taylor, CMT
Chartered Market Technician

Stewart Taylor

About the author:
Stewart Taylor retired from Eaton Vance Management in January 2020 after a 40-year career in US fixed income with an emphasis on technical analysis and relative value investing. He joined Eaton Vance as the Senior Trader for the Investment Grade Fixed Income team in 2005. During his tenure, he was a portfolio manager for institutional separate accounts and mutual funds, managed the team’s inflation assets, and was the team’s strategist for duration, relative value, and economic positioning. From 1992 to 2005, he provided private investing and trading consultation to institutional buy side, broker-dealers, and hedge funds.
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Investing with the Trend: Appendix

Note to the reader: This is a set of appendices for a series of articles I’m publishing here, taken from my book, “Investing with the Trend.” Hopefully, you will find this content useful. Market myths are generally perpetuated by repetition, misleading symbolic connections, and the complete ignorance of facts. The world of finance is full of such tendencies, and here, you’ll see some examples. Please keep in mind that not all of these examples are totally misleading — they are sometimes valid — but have too many holes in them to be worthwhile as investment concepts. And not all are directly related to investing and finance. Enjoy! – Greg

Appendix A: Passive vs. Active Management

Passive management means that the investor or manager does not change the portfolio components, except for occasional (usually based on the calendar) rebalancing to some preconceived ratio of stocks and bonds. Passive is prosaic, and often is designed just to replicate the market. An active investor or manager is one who attempts to invest in top-performing stocks or assets using some methodology to assist in that process. Often, it is difficult to tell the difference between some active managers and their benchmark. They have become benchmark huggers, often because of career risk. This is not a complete list, but does address the most popular strategies and while there is some overlap in some strategies, that is not unexpected.

Examples of Passive

Buy and hold. The concept of long-only investments is usually based on fundamental research. For decades, this was the much touted method to long-term success in the stock market, and, in fact, for most people, that is probably correct, especially if much of their holding period was during a secular bull market. Value investing is generally attributed to this type of investing. Sadly, buy and hold can be devastating during secular bear markets. Five of the strong arguments for buy and hold are:

  1. The market goes up over the long run.
  2. Equity returns will keep you ahead of inflation.
  3. The market always recovers from bear markets.
  4. Commissions, fees, and taxes are kept low.
  5. No one can time the market’s up and down moves.

This book is about why those arguments are false. Hopefully when you read them, you were aware that they are not strong arguments at all, but merely selling points for those who benefit from your decision to buy and hold.

Strategic asset allocation. A very popular process, which basically infers that the investor or manager sets up a portfolio of assets based on their individual risk to return measures. This concept has been the tenant of modern portfolio theory and, like buy and hold, works quite well in secular bull markets. The really sad part is that buy-and-hold probably will outperform strategic asset allocation in those secular bull markets. Strategic asset allocation almost always involves periodic rebalancing to the predetermined ratio. Personally, I find it hard to adapt to a strategy that sells its best performing assets and buys more of the worst. Peter Mauthe says strategic asset allocation does not have a tactic. Mauthe goes on to say that nothing gets better with neglect. My tire pressure is low, so I can be passive or active in attending to them. Health, relationships, customer relations, nothing I know of gets better with neglect. So why would my investments be any different?

Portfolio rebalancing seems flawed from its basic premise: selling the best performing assets and buying more of the worst performing assets. Or, selling the best and buying the worst hoping that mean reversion kicks in before you kick off.

Dollar cost averaging. The act of investing a fixed dollar amount on a periodic basis. This was addressed in more detail in The Hoax of Modern Finance – Part 3: Fictions Told to Investors.

Examples of Active

Momentum. A concept that selects the top-performing assets based on their price performance. While this sounds good, the process does involve determining the period of time to use to measure that performance and usually involves some sort of ranking capability.

Sector rotation. Somewhat similar to a momentum strategy, but restricted to market sectors and sometimes includes the industry groups. This technique is probably easier to put into practice, as it involves fewer issues to monitor and measure. One of the problems with this strategy is that it cannot protect you from bear markets, only reduce the pain. If this strategy is long only and the goal is to remain fully invested, then it was described in The Hoax of Modern Finance – Part 11: Valuations, Returns, and Distributions.

Alternatives. These strategies usually come to fruition during the mid-to-later years of secular bear markets, when investors realize that passive investing is no longer working. Futures, hedging, options, and a whole host of derivative products are used across the board in the alternatives category.

Absolute return. This falls under the Alternatives header and generally relates to strategies that are totally unconstrained in long, short, hedges, leveraged, and so on. They are not tied to any benchmark, hence, absolute return vs. relative return.

Tactical asset management. This was listed last as this is essentially what this book is all about. Tactical asset management infers that the investor or manager is unconstrained not only in which assets, but when to invest in them.

Table A.1 gives brief comments on the various strategies. With the benefit of hindsight, the market can seem predictable; however, many of these strategies are more useful in describing the market’s past than in anticipating its future.

Note: Active management is quite broad. At one end, it can be a manager who rebalances a portfolio once a year. This approach rarely uses stop loss protection and is always 100% invested, which means it does not ever hold cash or cash equivalents. At the other end of the spectrum is the tactical unconstrained manager, similar to my “Dancing with the Trend” strategy. This is an approach that utilizes stop loss protection, treats cash and cash equivalents as an asset class, and is determined to protect the downside.

Appendix B: Trend Analysis Tables

See the tables in Market Research and Analysis – Part 3: Market Trend Analysis.

Appendix C: Market Breadth

In 2006, McGraw-Hill published my book, The Complete Guide to Market Breadth Indicators. Breadth was an area I had spent a great deal of time on over the past 30-plus years. Breadth was almost totally ignored by the technical analysis community as most of the popular books on technical analysis usually only devoted a chapter to the subject of breadth. The book was in actuality a giant research project for me, one that took well over a year to complete even though I had been collecting breadth data and information since the 1980s. I tried to include every known breadth indicator or relationship in existence. I think I almost did that. The information following is from that book, and what I feel is the absolute most important part of the book. Enjoy!

Why Breadth?

  • It takes advantage of inefficient markets. If investors are irrational and prone to excessive optimism with the latest hot stocks and excessive pessimism with those issues that have suffered recently, then market capitalization weighting reflects those inefficiencies from its very definition of shares times price. Breadth, which is equal weighted, does not have that problem.
  • Avoid heavy concentration into a few stocks. Market capitalization weighting often causes a large portion of a portfolio to be concentrated in only a few issues—concentration risk. Breadth totally avoids this.
  • Get more exposure to small capitalization stocks. Merely by the concept of capitalization weighting, small stocks will have a smaller effect on the portfolio. True, they are generally considered riskier, but they have also had historically stronger performance. Breadth deals with large and small capitalization stocks equally.

Breadth analysis is like quantum mechanics, it does not predict a single definite result, instead it predicts a number of different possible outcomes, and tells us how likely each one will be. Breadth directly represents the market, no matter what the indices are doing. It is the footprint of the market and the best measure of the market’s liquidity.

Most breadth indicators are at best, coincident indicators, and usually somewhat lagging. Any of the indicators that are smoothed with moving averages are certainly lagging. Lagging means that the indicator is only telling you what is happening after it has happened. Lagging is not a problem, once you realize that picking exact tops and bottoms in the market is better left to gamblers. Th e confirmation of lagging indicators, however, is very important. Some breadth indicators, especially some of the ratios, can offer leading indications based upon the identification and use of previous levels or thresholds that are consistent with similar market action. An oscillator that reached a threshold level, either positive or negative, with consistency relative to market tops and bottoms is such an indicator. Many breadth indicators work in this manner.

A Familiar Breadth Indicator

Most investors are familiar with the long-running Friday night show, Wall Street Week, on Public Broadcasting hosted by Louis Rukeyser, who, every week would comment on his elves (his term for technical analysts) and the Wall Street Week Index. What you may not have known is that this index was a composite of 10 indicators, three of which were breadth-based. Robert Nurock, long-time panelist and Chief Elf, created it. Robert Nurock was the editor of the Astute Investor, a technical newsletter for many years.

The Arms Index was one of the indicators in the Wall Street Week Index. A 10-day moving average was used with bullish signals given when it was about 1.2 and bearish when it was below 0.8. The advances minus the declines were used over a 10-day period and bullish signals were from the point where the index exceeds 1,000 to a peak and down to a point 1,000 below the peak. Bearish signals were just the opposite. The third breadth indicator used was the new highs compared to the new lows. For bullish signals an expansion of the 10-day average of new highs from less than 10 up to 10-day average of new lows. Similarly, bearish signals were an expansion of 10-day average of new lows from less than 10 until it exceeds the 10-day average of new highs.

Breadth Components

Breadth components are readily available from newspapers, online sources, and so on and consist of daily and weekly statistics. They are: Advances, Declines, Unchanged, Total Issues, Up Volume, Down Volume, Total Volume (V), New Highs, and New Lows.

From one day to the next, any issue can advance in price, decline in price, or remain unchanged. Also any issue can make a new high or a new low. Here are more specific definitions:

  • Advancing Issues or Advances (A)—Stocks that have increased in price from one day to the next, even if only by one cent, are considered as advancing issues or advances.
  • Declining Issues or Declines (D)—Stocks that have decreased in price from one day to the next are considered declining issues or declines.
  • Unchanged Issues or Unchanged (U)—Stocks that do not change in price from one day to the next are considered unchanged issues or unchanged.

Note: Prior to July 1997, stock prices were measured in eighths of a point, or about 12.5 cents as the minimum trading unit. In July 1997 the NYSE went from using eighths to sixteenths. This made the minimum trading unit about 6.25 cents. On January 2, 2002, they went to a decimalization pricing that made the minimum trading price equal to one cent (a penny).

  • Total Issues (TI)—This is the total of all issues available for trading on a particular exchange. If you added the advances, declines, and unchanged issues together it would equal the total issues.
  • Advancing Volume or Up Volume (UV)—This is the volume traded on a day for each of the stocks that are advancing issues. It is the total volume of all the advances.
  • Declining Volume or Down Volume (DV)—This is the total volume for all the declines for a particular day.
  • Total Volume (V)—This is the total volume of all trading for a particular day. Total volume is the sum of Up Volume, Down Volume, and Unchanged Volume. To find Unchanged Volume subtract the sum of Up Volume and Down Volume from the Total Volume. Total volume is not generally considered a breadth component, but is many times used in a ratio with the up or down volume to alleviate the increase in trading activity over long periods of time.
  • New High (H)—Whenever a stock’s price reaches a new high price for the last 52 weeks it is termed a new high. New Low (L)—Whenever a stock’s price reaches a new low price for the last 52 weeks it is termed a new low.

Note: The NYSE new highs and new lows are now computed on a fixed 52-week moving time window starting on January 1, 1978. Before that, the new highs and new lows were computed on a variable time window of anywhere from two and a half months to 14 and a half months. This rendered the new high new low data prior to 1978 almost useless, and certainly confusing to use.

Breadth vs. Price

Breadth does not consider the amount or magnitude of price change. It also does not consider the number of shares traded (volume). And it does not consider the shares outstanding for individual stocks. Most stock market indices, such as the New York Stock Exchange Composite Index, the Nasdaq Composite Index, S&P 500 Index, the Nasdaq 100, and so on, weigh each stock based on its price and number of outstanding shares. This makes their contribution to the index based on their value and are some.times called market-value weighted indices or capitalization weighted indices. Because of this (at this writing), Microsoft, Qualcomm, Intel, Cisco, eBay, Nextel, Dell, Amgen, Comcast, and Oracle account for more than 40 percent of the Nasdaq 100 Index and its ETF, QQQQ. Ten percent of the components account for 40 percent of the price movement of the index. This can lead to an incorrect analysis of the markets, especially if some of these large cap stocks experience price moving events. Many times the reference to the large caps issues is that of the generals, while the small caps are referred to as the soldiers. As you will find out, the generals are not always the leaders.

Breadth treats each stock the same. An advance of $10 in Microsoft is equally represented in breadth analysis as the advance of two cents of the smallest, least capitalized stock. Breadth is truly the best way to accurately measure the liquidity of the market.

The Difference Between Daily and Weekly Breadth Data

You just cannot add up daily breadth data for the week to get the weekly data. Here is a scenario that will explain why.

Here’s the narrative: An advance or decline for the week should be based on its price change from the previous Friday close to the close of the current week. It has absolutely nothing to do with the daily data. Take a single stock; its previous Friday close price was $12. On Monday, it was up $1 to $13. It went up a dollar each day for the first four days of the week and closed on Thursday at $16. However, on Friday, it dropped $5 to $11. For the week it was down $1, which would be one decline for the week. However, on a daily basis, it accounted for four advances and one decline, or a net three advances.

John McGinley, past editor of Technical Trends and sidekick of the late Arthur Merrill, sent this note: “I strongly believe that in creating weekly figures for the advance declines, one does not use the published weekly data for they disguise and hide what really went on during the week. For instance, imagine a week with 1,500 net advances one day and the other four days even. The weekly data would hide the devastation which occurred that dramatic day.”

Advantages and Disadvantages of Using Breadth

Consider a period of distribution (market topping process) such as 1987, 1999, 2007, 2011, and so on. As an uptrend slowly ends and investors seek safety, they do so by moving their riskier holdings, such as small-cap stocks, into what is perceived to be safer large-cap and blue chip stocks. This is certainly a normal process and one that can’t be challenged. However, the mere act of moving from small- to large-cap stocks causes the capitalization-weighted (Nasdaq Composite, New York Stock Exchange Index, S&P 500) and price-weighted (Dow Industrials) to move higher simply because of the demand for large-cap issues. Breadth, on the other hand, begins to deteriorate from this action. It is said that breadth arrives at the party on time, but always leaves early. Another analogy is that the troops are no longer following the generals. There is a nice chart showing this concept in Figure 13.9.

Breadth data seems to not be consistent among the data providers. If you think about it, if a stock is up, it is an advance for the day, so why is there a disparity? Some data services will not include all stocks on the exchange. They will eliminate preferred issues, warrants, rights, and so on. This is fine as long as they tell you that is what they are doing. In the past few years, the number of interest-sensitive issues on the New York Stock Exchange has increased so that they account for more than half of all the issues. These issues are preferred stocks, closed-end bond funds, and electric utility stocks, to mention a few.

Many analysts such as Sherman and Tom McClellan, Carl Swenlin, and Larry McMillan use common-stocks-only breadth indicators. Richard Russell refers to it as an operating company-only index. Using stocks that have listed options available is another good way to avoid the interest-sensitive issues, since most stocks that have listed options are common stocks.

Each breadth indicator seems to have its benefits and its shortcomings. The fact that breadth measures the markets in a manner not possible with price is the key element in these conclusions. Breadth measures the movement of the market, its acceleration and deceleration. It is not controlled by General Electric, Microsoft, Intel, Cisco, General Motors, and so on, any more than it is controlled by the smallest capitalized stock on the exchange.

Table C.2 shows the breadth components needed for calculation of the indicator, whether the indicator is better for picking market bottoms, market tops, trend analysis, and whether it is better for short- or long-term analysis. Keep in mind that short-term is generally some period of time less than five-to-six months. Identification of a market bottom can be an event that can last only a few days or launch a giant secular bull market. In Table C.2, the terms short- and long-term refer to the frequency of signals as much as anything. A number of the long-term indicators are good for trend following; in Table C.2, if neither Bottoms nor Tops were checked, it was because the indicator is better at trend analysis.

Some indicators are better at Tops, Bottoms, and both, and, at different times, but are only identified by Bottoms and/or Tops below. Great effort was made to determine if one appeared to be better at one or the other. If no difference could be ascertained, they were reported as being good for both Bottoms and Tops. Please keep in mind the nature of market bottoms versus market tops. Bottoms are generally sharp and quick and usually much easier to identify, whereas market tops are usually long periods of distribution where most market indices rotate through their peaks at different times. You will notice that considerably more indicators are noted as being good at Bottoms than at Tops. Add to that the subjective interpretation of the various indicators, and the table that follows should be viewed as a beginning guide only.

Favorite Breadth Indicators

Here is a list of breadth indicators that I believe are good ones to follow. Some are for daily analysis and some are used merely to be kept aware of their indications. There are some really good breadth indicators that have made some very good market calls over the years—they are marked as awareness-only below. I try to avoid noisy indicators that require too much interpretation and very short term in nature.

New High New Low Validation Measure

During my research on breadth, I became acutely aware that most analysts treated new highs and new lows in the same manner as they did with advances, declines, up volume, and down volume. A terrible mistake, as I will attempt to explain. This will help validate and show how to interpret new high and new low data. If you consider the facts relating to new highs and new lows, you will see the necessity for this. A new high means that the closing price reached a high that it had not seen in the past year (52 weeks). Similarly, a new low is at a low not seen for at least a year. This indicator tries to identify when the new high or new low is determined to be good or bad using the following line of thinking.

Consider that prices have been in a narrow range for more than a year. Something then triggers an event that causes the market to move out of that trading range to the upside. This will immediately cause almost every stock that moves with the market to also become a new high. New highs are generally the force that keeps good up moves going. The new lows in this scenario will dry up, as expected. Now consider that the market has had a steady advance for quite some time. The number of new highs will generally continue to remain high as most stocks will rise with the market. Of course, there will be drops as the market makes corrections on its path to higher prices. When the number of new highs starts to dry up, you will probably notice that the number of unchanged issues starts to increase slightly, because a lot of stocks will just cease to participate in the continuing rise. New lows will not happen for some time because the market is just starting to form a top. The number of new lows will increase as the market forms its broad top, while the number of new highs gets smaller and smaller. It will be the time frame of this topping action that determines when the new lows will start to kick in. Remember, you cannot have a new low until an issue is at a new low price over the last year.

When the market declines and you start to see fewer new lows, it means the market is losing its downside momentum. Why is this so? It is because some issues have already bottomed and are not continuing to make new lows. This is tied to the rotational effect, sometimes caused by various market sectors hitting bottoms at different times. Figure C.1 is an attempt to show this visually. Up spikes (solid line) equal to +2 represent good new highs. Up spikes (dashed line) equal to +1 represent bad new highs. Similarly, down spikes (solid line) at –2 equates to good new lows and –1 (dotted line) equates to bad new lows. You might read that again, since it is not obvious. I wanted to keep the new highs as the up spikes and the new lows as the down spikes. Short up spikes are bad new highs, and short down spikes are bad new lows. Bad, in this case, means they did not conform to the theory talked about above.

In Figure C.1, the top plot is the NYSE Composite index, with a 252-day exponential average overlaid. The bottom plot is the new lows, the next to the bottom is the new highs, and the second from the top plot is the New High New Low Validation Measure. It is the plot that has the tooth-like moves both up and down. The top of the up moves is at a value of 2 and represents valid new highs. The bottom of the down moves is at –2 and represents valid new lows. The smaller up and down moves are at +1 and –1 and represent new highs and new lows, respectively, which are good, but not as good as the ones at +2 and –2. Although this is a great deal of information to put into a single chart in a black-and-white book, you can look at the validated periods and compare them to the top plot of the NYSE Composite and see that they do a really good job of pointing out new highs and new lows that are meaningful.

This method of trying to determine when the new highs and new lows are truly good ones involves the rate of change of the market, a smoothed value of each component relative to the total issues traded, and their relationships with each other. For example, if the market is in a rally (rate of change high) and the new highs are increasing, any new lows that appear are not good ones. Similarly, if the market is in a downtrend, with high negative rate of change, then any new highs that appear are not good ones. The use of the term good ones refers to whether they are valid to use in any new high-new low analysis.

Appendix D: Recommended Reading

There are many great books available in the field of technical analysis and finance. However, I’m going to keep the list short and focused. The bibliography contains many other wonderful books on technical analysis, finance, and behavioral analysis, but if I had to pick a library of only four books, this is it.

Getting Started List

  • Kirkpatrick, Charles D., and Dahlquist, Julie R., 2011, Technical Analysis, Pearson Education, Upper Saddle River, NJ.
  • Easterling, Ed., 2011, Probable Outcomes, Cypress House, Fort Bragg, CA.
  • Bernstein, Peter L., 1998, Against the Gods, John Wiley & Sons, New York.
  • Montier, James, 2010, The Little Book of Behavioural Investing, John Wiley & Sons, West Sussex, England.

Additional Recommended Reading

I’m not sure why I started this list, because there are so many great books on investing out there now that it is difficult to decide which to read. I guess I just answered my own dilemma, as I have read many, if not most, of them, and these are the ones I personally would recommend because they complement this book.

  • Pring, Martin J., 1985, Technical Analysis Explained, McGraw-Hill, New York.
  • Bernstein, Peter L., 1992, Capital Ideas, John Wiley & Sons, Hoboken, NJ.
  • Makridakis, Spyros and Hogarth, Robin, 2010, Dance with Chance, Oneworld Publications, Oxford, England.
  • Mandelbrot, Benoit, 2004, The (Mis)Behavior of Markets, Basic Books, New York.
  • Shefrin, Hersh, 2002, Beyond Fear and Greed, Oxford University Press, New York.
  • Solow, Kenneth R., 2009, Buy and Hold Is Dead Again, Morgan James Publishing, Garden City, NY. 
  • Tetlock, Phlip E, 2005, Expert Political Judgement: How Good Is It? How Can We Know?, Princeton University Press, Princeton, NJ.
  • Fox, Justin, 2009, Myth of the Rational Market, HarperCollins, New York.
  • Coleman, Thomas S., 2012, Quantitative Risk Management, John Wiley & Sons, Hoboken, NJ.
  • Weatherall, James O., 2013, The Physics of Wall Street, Houghton Mifflin Harcourt Publishing, New York.

Thanks for reading this far. The conclusion to this series will publish in one week. Can’t wait? The book is for sale here.

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S&P 500 Still Bullish: This Is What You Should Watch For



  • Stock market unfazed by today’s jobs data
  • Yields rise, US dollar rises, and equities close the week relatively flat
  • Market breadth continues to be strong, indicating the stock market is still chugging along

It was a bit of a seesaw week in the stock market, but, overall, the market seems to think everything is looking good.

The May employment report indicated that the change in Non-Farm Payrolls (NFP) was stronger than expected. It came in at 272,000, significantly higher than the estimated 190,000. The unemployment rate climbed to 4%, and wages rose 4.1% in the past year.

The market’s initial reaction? Well, treasury yields spiked after the report was released, and equity futures turned sharply lower. However, that didn’t last long. At one point, the S&P 500 reached a new all-time high but closed lower. The number of added jobs weakens the probability of an interest rate cut. But isn’t that what the market is expecting? Long-term, things are looking fine. Let’s take a closer look.

Starting with the weekly chart of the S&P 500 ($SPX), it’s clear the trend is still bullish, as is momentum (see chart below). Until this changes, there’s no reason to think equities are setting up for a significant selloff.

CHART 1. WEEKLY CHART OF THE S&P 500 INDEX. The bullish trend is still intact and momentum continues to be strong.Chart source: StockChartsACP. For educational purposes.

The weekly perspective remains strong, with the S&P 500 trading above its 21-week exponential moving average (EMA). The index bounced off its 21-week EMA (red line), and, with the exception of a reversal last week—which didn’t put much of a dent in its bullish path—it continues to trend higher.

The Linear Regression Forecast (LRF) indicator (blue line) also indicates an upward trend. Since the LRF is based on the line of best fit, it can be considered a good indicator to measure the near-term trend. The last point of this indicator forecasts price direction, which, in the weekly chart, points higher.

Momentum also seems strong, with the moving average convergence/divergence trending higher and the stochastic oscillator well in overbought territory. So, from a weekly perspective, the S&P 500 looks bullish.

Does the picture change on the daily chart? Let’s take a look.

CHART 2. DAILY CHART OF THE S&P 500 INDEX. It may be a little more choppy than the weekly chart, but the trend is still bullish, and the momentum is strong.Chart source: StockChartsACP. For educational purposes.

The daily chart is a little more choppy than the weekly one, but it still suggests the S&P 500 is trending higher. The market had a bumpy ride at the end of May, but it recovered.

Watching a breadth indicator to see if it supports the trend is a good idea. There are several breadth indicators available in, such as the Advance-Decline Line, McClellan Oscillator, and the Bullish Percent Index (BPI).

The chart below displays the BPI for the S&P 500. When the BPI is above 50, it indicates that bulls have the edge, with 70 representing overbought levels and 30 oversold, although you can use different thresholds.

CHART 3. S&P 500 BULLISH PERCENT INDEX. The BPI indicates the S&P 500 is still bullish.Chart source: StockChartsACP. For educational purposes.

It’s interesting to note that the S&P 500’s BPI hasn’t been below 30 since the end of October. This suggests that the overall market continues to be bullish.

Another confirming indicator is the Volatility Index ($VIX), which continues to be low. Investors are not showing any signs of panic.

Bond Market Action

One interesting piece of the stock market puzzle is the bond market, which tends to move on the jobs data. With yields coming down, bond prices started to move up. The daily chart of the iShares 20+ Year Treasury Bond ETF (TLT) below shows that TLT broke out above its downward-sloping trendline and broke above its last significant high (May 16). But Friday’s price action sent Treasury yields higher, and bond prices fell below their May high.

CHART 4. DAILY CHART OF ISHARES 20+ YEAR TREASURY BOND ETF (TLT). After breaking above its last high, bond prices declined. It remains to be seen if this is a correction or a sign that bonds are still struggling.Chart source: StockChartsACP. For educational purposes.

While one day’s action doesn’t signify a trend reversal, it’s a good idea to watch the action in the bond market. Add this chart to your ChartLists and keep an eye on whether TLT breaks above its May high. If it does, it could further confirm that bonds are trying to come off their lows.

Another point not to be missed is the action in the US dollar, another asset that reacts to jobs data. The greenback spiked in today’s trading. So, we have a situation where bond yields spiked, the dollar spiked, and equities were relatively flat. On the other end of the spectrum, metals got clobbered. Do metal traders know something about the inflation data?

Everything rests on next week’s action, which is a data-heavy week. There’s the Consumer Price Index (CPI) and FOMC meeting. Given that today’s jobs data showed that wages data came in higher, you can bet the CPI data will be watched closely.

Let’s see what the Fed says next week. The CME FedWatch Tool shows a small probability of a rate hike in the September meeting, but that could change. The key point to listen for is whether inflation is coming down at the rate the Fed wants to see. The market has priced in one rate cut possibility this year. If we hear otherwise, the market could react either way.

The Takeaway

Technical indicators look good, which suggests that the stock market is still bullish. But watch market breadth and the VIX. If they start to turn—it has to be a significant reversal—then you can start worrying. In other words, if you think the stock market is toppy and it’ll sell off, wait for the confirming indicators to show you the market will sell off.

End-of-Week Wrap-Up

  • S&P 500 closes down 0.11% at 5,346.99, Dow Jones Industrial Average down 0.22% at 38,798.99; Nasdaq Composite down 0.23% at 17,133.13.
  • $VIX down 2.86% at 12.22
  • Best performing sector for the week: Technology
  • Worst performing sector for the week: Utilities
  • Top 5 Large Cap SCTR stocks: NVIDIA (NVDA); MicroStrategy Inc. (MSTR); Super Micro Computer, Inc. (SMCI); Vistra Energy (VST); Applovin Corp. (APP)

On the Radar Next Week

  • May CPI
  • Federal Reserve’s interest rate decision and press conference
  • May PPI
  • June mortgage rates
  • June Preliminary Michigan consumer and inflation expectations
  • Fed speeches (Goolsbee, Cook)

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

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Stock Market Shows Its Magic: An Exciting Finish



  • The stock market has wrapped the week on a positive note
  • Consumer Staples stocks may start to show strength in the near future
  • More macro data is on deck for next week

What a turnaround! Today’s PCE data, which was in line with expectations, initially sent the stock market higher. Then, it experienced a significant selloff, but things changed in the last 30 minutes. Equities pushed higher into the close, revealing that investor optimism isn’t dead. The S&P 500 ($SPX) and Dow Jones Industrial Average ($INDU) closed higher, and the Nasdaq Composite ($COMPQ) was flat.

Today’s stock market behavior shows how it can turn on a dime, and there’s no way to anticipate what it’ll do. The PCE came in as expected, which, realistically, shouldn’t have altered investor sentiment. The expectation of possibly getting one rate cut in 2024 is still in play, so it made sense to see the selloff for most of the trading day. But that big push higher shortly before the close makes it difficult for an investor to be pessimistic.

A Closer Look at the Trading Action

For most of the day, Tech stocks sold off significantly. The weekly chart of the Nasdaq Composite (see below) shows that, if it hadn’t been for the rise at the end of the trading day/week/month, the index could have closed below its first support level (blue dashed line). Instead, it was able to close well above the support level.

Follow the live chart.

Could that mean the index will try hitting a new high next week? It’s something to anticipate, but always be prepared for the market to go either direction.

CHART 1. WEEKLY CHART OF NASDAQ COMPOSITE. The index looked like it would close below its first level, but buying pressure dominated, and the index closed for the week on a relatively optimistic note.Chart source: For educational purposes.

Not much has changed. The Nasdaq is trading above its 21-day exponential moving average (EMA), which is trending upward, as is the 50-day simple moving average (SMA).

Follow the live chart.

Like the weekly chart, the daily chart of the Nasdaq Composite also shows some clear lines in the sand. Today’s range was significant and, while it looked like there could have been some short-term technical support breaks, the index ended the week without much to worry about.

CHART 2. DAILY CHART OF NASDAQ COMPOSITE. There are clear lines of sand in the daily chart of the Nasdaq, and there is enough buying interest to keep the index above the initial support levels.Chart source: For educational purposes.

Follow the live chart.

You can blame the tech stock selloff on semiconductors. To understand this better, it makes sense to bring up a chart of NVIDIA (NVDA), since the price action of the stock tends to correlate with the price action in the Nasdaq and S&P 500.

The daily chart of NVDA below shows a clear resistance level. From March to May, NVDA’s stock price hit resistance at around $965 and a few times before it gapped higher.

CHART 3. DAILY CHART OF NVDA. Could the stock fall to its previous resistance level?Chart source: For educational purposes.

NVDA’s recent earnings saw the stock price surge higher, but the buying seems to have exhausted. The question is whether NVDA’s stock price will retrace back to the $965 level. For a while, it looked like that could happen. We’ll have to wait until next week to see which way investor sentiment leans.

A look at the StockCharts MarketCarpet gives a good visual of today’s market action. You can clearly see that NVDA and Amazon, Inc. (AMZN) experienced the largest losses, but, overall, there was a lot of green. The dark green squares represent the largest percentage gainers, and one that stands out in the Tech sector is, Inc. (CRM). After falling almost 20% on Thursday after a dismal earnings report, the stock gained 7.5% on Friday.

CHART 4. THE BIG PICTURE. The StockCharts MarketCarpet gives a good overview of how the market performed.Chart source:

Follow the live chart.

Interestingly, it wasn’t so green in the Tech and Communications Services sectors. But the other sectors were doing relatively well. Two stocks that should be on your radar are Gap Stores (GPS) and Deckers Outdoor Corp. (DECK).

CHART 5. RETAIL STOCKS SURGE. Gap, Inc. (GPS) and Deckers Outdoors (DECK) are seeing significant strength. These two stocks should be on your radar.Chart source: StockChartsACP. For educational purposes.

GPS rose on strong Q1 earnings and strong guidance. DECK’s shares have been rising on the popularity of their Hoka shoes. The rise in these stocks indicates the retail sector continues to be strong.

The Takeaway

Overall, May ended on a positive note. Maybe the “Sell in May and go away” strategy will have to wait. Next week, there will be some earnings, but the focus will be on macro data. Will the data be enough to move the needle? The jobs number will probably have the largest impact if it comes in hot.

End-of-Week Wrap-Up

  • S&P 500 closes up 0.80% at 5,277.51, Dow Jones Industrial Average up 1.50% at 38,686.32; Nasdaq Composite down 0.01% at 16,735.02
  • $VIX down 10.71% at 12.92
  • Best performing sector for the week: Energy
  • Worst performing sector for the week: Technology
  • Top 5 Large Cap SCTR stocks: MicroStrategy Inc. (MSTR); Vistra Energy Corp. (VST); NVIDIA (NVDA); Super Micro Computer, Inc. (SMCI); Robinhood Markets (HOOD)

On the Radar Next Week

  • May Manufacturing PMI
  • May Services PMI
  • April JOLTS Job Openings
  • May Non-Farm Payrolls
  • Earnings from CrowdStrike Holdings (CRWD), Hewlett Packard (HP), and Lululemon Athletica (LULU)

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

Jayanthi Gopalakrishnan

About the author:
Jayanthi Gopalakrishnan is Director of Site Content at She spends her time coming up with content strategies, delivering content to educate traders and investors, and finding ways to make technical analysis fun. Jayanthi was Managing Editor at T3 Custom, a content marketing agency for financial brands. Prior to that, she was Managing Editor of Technical Analysis of Stocks & Commodities magazine for 15+ years.
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From Summer Doldrums to Year-End Surge: How to Profit from Seasonal Trends in Precious Metals and Bitcoin



  • Bitcoin, gold, and silver exhibit similar seasonality patterns.
  • Bitcoin, gold, and silver prices largely reflect economic expectations.
  • If you’re bullish on bitcoin, gold, or silver, there are critical levels to watch.

Safe-haven investments like gold, silver, and now Bitcoin have had a bumpy and uncertain rise, but they’ve all ascended despite mixed opinions from analysts. This rise is due to fears of inflation (or slow growth with inflation), record-high US national debt, changing Fed rate expectations, and record purchases by central banks, especially among the BRICS nations.

Except for Fed rate cuts, which might happen sometime toward the end of the year, much of everything mentioned above is likely to continue in the direction they’ve been going—which is against the US dollar(‘s value of).

Bearish Near-Term, Bullish Long-Term

Aside from interest rates remaining steady, if not another hike (depending on the upcoming trio of inflation reports), there’s another reason to anticipate a potential dip before the next leg up: seasonality.

Gold, silver, and Bitcoin all experience summer doldrums. So, based on this expectation, should this seasonal pattern repeat this year, let’s assume there might be a dip in the near-term followed by a potential bullish surge toward the end of the year. If you want to get into any of these safe havens, might this summer be a time to load up on positions?

Tools for Analysis

The objective is to examine the seasonality outlook and compare it to the current price context. To do this, it helps to look at StockCharts’ Seasonality tool and the tools in StockChartsACP to fine-tune your analysis. This article will use the Fibonacci Retracement tool and the Money Flow Index (MFI) to fine-tune its analysis.

Seasonal Hot Summer “Dips” in Gold, Silver, and Bitcoin

Since you’re likely a stock trader or investor, let’s not just look at each asset’s seasonality by itself, but compare its seasonal performance against the S&P 500 ($SPX) to see its historical performance against the broader market (which may bear similarity to your portfolio).

Using StockCharts’ Seasonality tool, pay attention to the following two figures and note that we’re looking at a 10-year seasonality cycle:

  • The bars (and numbers above them) represent the % frequency of the asset closed higher, in this case, relative to the S&P.
  • The % figure at the bottom of the bar reflects the average return over 10 years relative to the S&P 500.

CHART 1. SEASONAL 10-YEAR CHART OF BITCOIN AGAINST THE S&P 500. Note the higher-close rate versus the average returns.

Bitcoin’s higher close rates and returns in June and July are decent, with August being the worst-performing month (summer doldrums). But almost all months tend to get dwarfed by the October higher close rates and returns (89% higher closes and a 22.5% average return).

Now, let’s look at silver’s ($SILVER) performance.

CHART 2. SEASONAL 10-YEAR CHART OF SILVER AGAINST THE S&P 500. Note the weakest performances in June and November vs. its outperformance in December.

Not quite as brilliant as Bitcoin, but silver ($SILVER) is the neglected sibling among the three. Compared to the S&P 500 (remember, we’re not looking at each asset’s seasonality on its own), June through November tend to hover from negative to almost no movement despite the higher closing rates in August and October. November is the worst month for silver, but December is the month the white metal tends to outshine the broader market, with a 67% higher close rate and a 4% return. Again, this supports the bearish to bullish pattern that the market tends to be expecting on a fundamental basis.

And finally, gold.

CHART 3. SEASONAL 10-YEAR CHART OF GOLD AGAINST THE S&P 500. December and January are the strongest months for gold compared to the broader market.

Relative to the S&P, gold’s ($GOLD) performance looks similar to that of silver’s, with November being the worst month and December (but also January) exhibiting the strongest relative performance, with a 67% higher close rate and a 2.3% average return over the last 10 years.

So, if you reshuffle your portfolio with these safe-haven assets, you’d have to figure out which assets you’d be overweight and when while maintaining your broader market portfolio.

CHART 4. DAILY CHART OF BITCOIN. The crypto is in a trading range, but momentum is declining.

According to some analysts, during the traditionally slower summer months, prices may seek a new catalyst, potentially causing Bitcoin to drop below $50,000. Also, note the slight bearish divergence in the declining Money Flow Index (MFI) line and the almost flat range, signaling a drop in buying momentum. Assuming that’s the case, prices would first have to break below support a few points above the 38.2% Fibonacci retracement level (see blue arrow). A drop below this level would likely find support above the 50% Fib level (see blue arrow), below which we see the $50,000 price mark.

There’s likely to be some technical buying activity near this level. However, should prices continue drifting lower, the range between 50% and 61.8%, an ideal buying range, would also coincide with a four-week historical congestion range (see blue rectangle) above which there may be strong support. You should reassess your bullish outlook if the price falls below this level.

CHART 5. DAILY CHART OF SILVER. Note the strong surge in silver. Is it topping or does it have more room to run?

The slight divergence in the MFI shows a stronger price surge against slightly weakening momentum. Still, it makes you wonder if silver may be topping. As an industrial metal, in addition to being a monetary metal, silver has a different fundamental path. Nevertheless, it has a similar seasonality profile to Bitcoin and gold—summer weakness and end-of-year strength.

If prices top at the current highs, silver would have to break below its swing low (see blue dotted line), coinciding with the 23.6% Fib level. A break below this would likely find support at the 38.2% line coinciding with former resistance (see blue arrow). The next swing low, also an ideal buying range for those looking to go long, would be near $26.25, where the 61.8% Fib level sits.

CHART 6. DAILY CHART OF GOLD. Gold looks like it’s topping. But there’s plenty of clear support below it.

It looks like an intermediate-term double-top pattern, but whether this ends up being a correction or a much longer decline depends on several factors, one of which is the Federal Reserve’s rate actions.

Assuming a correction, the blue arrows indicate clear market-based support (and potential resistance-turned-support) levels. These coincide with the 38.2%, 50%, and 61.8% Fib retracements. Similar to the Bitcoin example above, you can also see a downsloping MFI line from the overbought range, indicating a slight weakening in buying pressure. If you’re following the seasonal narrative, near-term weakness followed by a bullish run toward the end of the year, the range between the 50% and 61.8% Fib levels may be a favorable entry. Just be sure to buy when technical conditions, from patterns to momentum,  indicate a strong bullish reversal.

The Takeaway

When “buying the dip,” identify strong reversal patterns and signs of bullish momentum. Despite the mixed opinions analysts may have on these three safe-haven assets, they have all responded to inflation, changing Fed rate expectations, and strong central bank buying (concerning gold, but also as an indication of challenges in the global economy and the US dollar).

Seasonality-wise, these assets often experience summer doldrums, potentially leading to near-term dips before a bullish surge towards the end of the year. If you’re considering going long, this summer might present an opportunity to buy. Keep an eye on the Fib levels.

How to Access the Seasonality Tool

There are different ways to access the seasonality tool in StockCharts. 

  • Click the Charts & Tools tab at the top of the StockCharts page, enter a symbol in the Seasonality panel, and click “Go.” 
  • Enter the symbol in the ChartBar at the top of the page and select “Seasonality” from the dropdown menu on the left.
  • From Your Dashboard, in Member Tools, click on Seasonality.
  • Below the seasonality chart, you’ll find links to instructions and quick tips that give more detailed instructions.

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

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