This week, the market appeared to shift dramatically from “stalling out at all-time highs” to extra of a “massive time risk-off selloff transfer” type of state of affairs. The warning indicators have been constructing in August, however, to date, September is ringing all types of market topping alarm bells. Let’s assessment three key charts that inform the story of this shift in investor sentiment.

Weaker Momentum Signifies Bulls are Exhausted

When the S&P 500 first examined the 5650 degree in July, the every day RSI pushed above 80 to strengthen the sturdy constructive momentum. Then, when that degree was retested in late August, the RSI was down round 60.

What gave the impression to be a possible pause earlier than an upside breakout now appears to be a confirmed double high sample with weakening momentum traits. This implies an exhaustion of bullish sentiment and appears awfully much like earlier market tops.

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To be clear, the S&P 500 nonetheless stays inside 5% of an all-time excessive.  However with the SPX down over 4% this week, and the Nasdaq 100 down virtually 6%, bears seems to be again in charge of the foremost market averages.

Elevated Volatility Implies Elevated Dangers

I used to be tremendous shocked to see the VIX come again right down to the mid-teens in mid-August after spiking to considered one of its highest ranges in historical past. By way of late August, the VIX remained beneath the 20 degree, suggesting a low-volatility surroundings.

This week, the VIX pushed again above that essential 20 degree, signaling elevated uncertainty and subsequently elevated threat for shares. Each day the VIX stays above 20 ought to give much less consolation to bulls cautiously in search of a dramatic upside reversal.

Newer Dow Idea Flashes Bearish Non-Affirmation

Lastly, we are able to look what I name the “Newer Dow Idea,” an adaptation of Charles Dow’s foundational work relating the actions of two main fairness indexes. Whereas Dow used the Dow Transports and Dow Railroads to gauge financial power, I like to think about an equal-weighted S&P 500 and equal-weighted Nasdaq 100 to match the efficiency of “previous financial system” versus “new financial system” names.

During the last six weeks, whereas the S&P 500 itself has stalled out across the 5650 degree, the Invesco S&P 500 Equal Weight ETF (RSP) has truly achieved a brand new all-time excessive. On the identical time, the Direxion Nasdaq 100 Equal Weighted ETF (QQQE) has truly displayed a decrease peak. Dow referred to as this configuration a “bearish non-confirmation,” the place a brand new excessive from one index was not confirmed by the value motion of one other. And this bearish non-confirmation is a standard characteristic of main market peaks.

As a trend-follower, I’d argue that the first development within the S&P 500 stays bullish so long as the index stays above the August swing low round 5200. However given the rising indicators of decay in these key macro charts, the probability of additional draw back in September feels very actual.

RR#6,

Dave

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David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This weblog is for instructional functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary state of affairs, or with out consulting a monetary skilled.

The creator doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the creator and don’t in any means symbolize the views or opinions of some other individual or entity.