Sustained Market Momentum Paired with Emerging Chart Warnings

Market shift: From Recovery to Risk as August Begins with Volatility

New York, NY – August 2, 2025 – A strong July for equities has given way to early August turbulence, signaling a potential shift in market dynamics. while the S&P 500 closed July with a robust 2.2% gain – bringing its year-to-date increase to 7.8% (8.6% in total return) – the first trading day of August saw a 1.6% decline, erasing a portion of those gains.This initial dip reflects a growing sense of caution as the market transitions from a rebound phase following April’s lows to a period where risk factors are gaining prominence. Analysts point to emerging seasonal headwinds and building pressure points as key contributors to the increased volatility.

Despite the short-term technical concerns, medium and longer-term trend indicators remain positive, leaving the market’s next move uncertain.

July’s Performance: A Risk-On Month

July’s gains extended a positive trend, marking the third consecutive month the market closed above its 10-month moving average – a strong indicator of an ongoing uptrend. Though, the broader asset class picture reveals a “risk-on” environment.

Frontier Markets led the charge in July returns, while US large-cap stocks secured third place. Year-to-date, US large caps occupy a mid-table position, trailing global stocks benefiting from a broader global rotation. Notably, bonds experienced declines alongside the equity rally, further emphasizing the risk appetite prevalent throughout the month.

Key Observations & Emerging Trends:

Volatility Surge: Both volatility and credit spreads are experiencing a typical seasonal increase,suggesting heightened uncertainty.
Tech Sector Dominance: investors are increasingly allocating capital to technology stocks, potentially creating concentration risk within portfolios.
Record Energy Demand: US electricity demand has reached a new all-time high, potentially signaling robust economic activity but also raising questions about infrastructure capacity and energy costs.
Technical Levels Under Pressure: While short-term support levels are holding, some indicators suggest a potential pullback might potentially be necessary to reach oversold conditions. Specifically, 50-day breadth is showing signs of rolling over from overbought levels, creating bearish divergence.

Looking Ahead: navigating the Shifting Landscape

The market’s current state presents a complex picture. While long-term trends remain healthy, short-term technicals are exhibiting weakness. Investors should remain vigilant, monitoring key indicators and adjusting portfolios accordingly. The transition from a recovery-driven rally to a more risk-aware environment demands a nuanced approach, balancing potential gains with prudent risk management.

What dose higher volume on down days perhaps indicate about market sentiment?

The Bullish Narrative: Where Are we Now?

Despite persistent inflation concerns and geopolitical instability, market momentum has remained surprisingly robust throughout much of 2025. The S&P 500, Nasdaq, and Dow Jones Industrial Average have all demonstrated consistent gains, fueled by strong corporate earnings (especially within the technology sector) and a resilient consumer. this sustained upward trajectory has led many investors to believe a new bull market is firmly established. Key drivers include:

Artificial Intelligence (AI) Boom: Continued investment and innovation in AI technologies are driving notable growth for companies like Nvidia, microsoft, and Alphabet.

Easing Inflation (Potentially): While still above target levels, inflation has shown signs of moderating in recent months, reducing pressure on the Federal Reserve to maintain aggressive interest rate hikes.

Strong Labor Market: A consistently low unemployment rate suggests a healthy economy, supporting consumer spending and business investment.

Positive earnings Reports: A significant percentage of companies have reported earnings that exceeded analyst expectations, bolstering investor confidence.

However, beneath the surface of this optimistic outlook, several emerging chart warnings suggest caution is warranted. Ignoring these signals could prove costly.

Identifying Emerging Chart Warnings: Key Indicators

While the overall trend remains positive, a closer examination of market charts reveals potential vulnerabilities. These aren’t necessarily signals to panic sell, but rather indicators to adjust risk exposure and prepare for potential volatility.

1. Divergence Between Price and Momentum

One of the most concerning signals is the growing divergence between price and momentum indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD). This means the price is still making higher highs, but the momentum indicators are failing to confirm those highs.

What it means: This suggests the underlying strength of the rally is weakening, and a correction may be imminent.

How to spot it: look for instances where the price reaches new highs, but the RSI or MACD fails to reach corresponding new highs.

2. Increasing Volume on Down Days

Healthy market rallies are typically accompanied by increasing volume on up days and decreasing volume on down days. though, we’ve recently observed a trend of increasing volume on down days and decreasing volume on up days.

What it means: This indicates that selling pressure is intensifying during pullbacks, suggesting a lack of conviction among buyers.

How to spot it: Compare the volume on recent up days and down days. A consistent pattern of higher volume on down days is a red flag.

3. Breakdown of Key Support Levels

Several key support levels are currently being tested. A decisive breakdown of these levels could trigger a cascade of selling.

Examples: Watch for potential breakdowns below the 50-day and 200-day moving averages, as well as key Fibonacci retracement levels.

Impact: A breach of these support levels could signal a shift in market sentiment from bullish to bearish.

4. Narrowing Market Breadth

Market breadth refers to the number of stocks participating in a rally. A healthy rally should be broad-based, with a large number of stocks advancing. though, recent gains have been largely concentrated in a handful of mega-cap technology stocks.

What it means: This suggests the rally is becoming increasingly reliant on a small number of companies, making it vulnerable to a correction if those companies stumble.

How to measure it: Track the advance-decline Line (ADL).A declining ADL while the major indices are rising is a warning sign.

Sector Rotation and defensive Positioning

Given these emerging chart warnings, it may be prudent to consider sector rotation and defensive positioning.

Defensive Sectors: Consider increasing exposure to defensive sectors like healthcare, consumer staples, and utilities. These sectors tend to outperform during market downturns.

Reduce Exposure to High-Growth Stocks: While high-growth stocks have led the rally,they are also typically the most vulnerable during corrections. Consider reducing your exposure to these stocks.

* Increase Cash Position: Holding a higher cash position provides flexibility to take advantage of potential buying