Sentiment Indicators Suggest Caution as Seasonally Weak Period Begins

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The next report will be on Wednesday, July 23rd.

Report Headlines

  • Seasonal Patterns Weak Into October
  • Smart Money vs Dumb Money
  • Call Volume is Getting Elevated

This report will focus on seasonal patterns and sentiment, but with a caveat. Seasonal patterns and sentiment are not the best market timing tools because they can reach extremes and remain at extremes. This is why we need to combine seasonality and sentiment with breadth and price action. We are entering a seasonally weak period for the stock market, smart money is turning cautious and call volumes are elevated. Stocks are up sharply since early April with some of the tech-related ETFs looking very frothy. The odds for a correction within the next three months are increasing so I will remain extra vigilant.

Seasonal Patterns Weak Into October

The three month stretch from July to September is historically the weakest period for stocks. The next chart shows S&P 500 seasonality from 1990 to 2007. July, August and September were the weakest months during this stretch.

The next chart shows S&P 500 seasonal patterns from 2008 to 2025. There is a shift here with the weakest three month stretch extending from August to October.

The next chart was made with Amibroker and shows the seasonal pattern over the last 30 years. The weakest stretch extends from August to mid October. Note that November and December are exceptionally strong months.

Smart Money vs Dumb Money

SentimenTrader tracks Smart Money / Dumb Money Confidence and shows this chart on their home page. Smart money refers to institutional activity, while dumb money refers to retail traders/investors. In theory, institutions are “in the know” and have more resources than retail traders. In contrast, retail traders are often late to the party. They become excessively bullish near tops and bearish near bottoms. Don’t be offended by the term “dumb money”. Most of us are retail traders!

The chart below plots these two sentiment indicators: Smart Money is red and Dumb Money is blue. Readings above .75 show strong bullishness, while readings below .25 reflect strong bearishness. Notice that Smart Money was very bullish in April and Dumb money was very bearish. The tides turned over the last three months with Smart Money dipping below .25 in late June and Dumb Money above .75. This suggests that institutions are turning cautious as retail investors remain strongly bullish. As a contrarian indicator, the Smart Money / Dumb Money Confidence indicator is flashing a caution flag.

Call Volume is Getting Elevated

The CBOE Equity Only Put/Call Ratio is at relatively low levels, which suggests elevated call volume. Option traders buy calls when they expect the stock to rise, and puts when they expect the stock to fall. A reading above 1 means put volume exceeds call volume, and excessive put volume suggests excessive bearishness. As a contrarian indicator, excessive bearishness is considered bullish. Conversely, readings near .50 mean call volume is almost double put volume. Excessive call volume suggests excessive bullishness and this is considered bearish (from a contrarian standpoint).

The chart below shows the 20-day EMA of the CBOE Equity Put/Call Ratio dipping below .55 in July, which means call volume is getting elevated. Larry McMillan of the Option Strategist notes that an upward breakout is needed to move from signs of excess to a bearish signal. There was a false breakout in January and then a breakout in late February, which foreshadowed the market decline into April. There was also a false breakout in June as the S&P 500 moved higher into July. Another setup is brewing and a breakout at .60 would trigger a bearish signal. In addition to this signal, I will be following McMillan’s signals.

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Equity ETF Report – SPY and QQQ Lead – Tech ETFs Become Overextended

Large-cap and large-cap techs continue to lead the market with small-caps and mid-caps lagging. SPY and QQQ hit new highs on Monday, but 279 stocks within the S&P 500 are more than 10% below their 52-week highs. 137 stocks are more than 20% below their 52-week highs. SPY and QQQ are not lifting all boats. 64 stocks are even below their April lows (closing lows), including Berkshire. These groups are doing the heaving lifting

Equity ETF Report – SPY and QQQ Lead – Tech ETFs Become Overextended Read More »

Market-ETF Report – Gold, Silver and Miners Consolidate – Copper and Palladium Extend

Even though some equity groups are performing well year-to-date, commodity and crypto related ETFs feature prominently on the leaderboard. The pink shading on the image below highlights these leaders. The top five ETFs are related to platinum, gold, silver, uranium and blockchain. Further down, we have ETFs related to copper, palladium, mining and BitCoin. SPY and QQQ may be trading at new highs, but they are not

Market-ETF Report – Gold, Silver and Miners Consolidate – Copper and Palladium Extend Read More »

Market-ETF Video – Breadth Improves – MidCaps Break Out – Banks Surge – Industrial Metals Move

The stock market advance broadened over the past week as more stocks crossed above their 200-day SMAs. Mid-caps caught a bid with IJH breaking its 200-day SMA. Small-caps also surged with IJR challenging its 200-day. We are also seeing flag/pennant breakouts in related groups (XLF, XLY, KBWB). Tech ETFs took a breather on

Market-ETF Video – Breadth Improves – MidCaps Break Out – Banks Surge – Industrial Metals Move Read More »

Market Regime – Breadth Improves – Yields Spreads Narrow – 10Yr Yield Falls

The majority of indicators remain bearish, but breadth continues to improve. First, the S&P 500 EW ETF joined SPY and QQQ with a close above the upper Bollinger Band (125,1) this week. Second, the percentage of S&P 500 stocks above their 200-day SMA exceeded 60% for the first time since February. Third, the other breadth indicators in the S&P 500

Market Regime – Breadth Improves – Yields Spreads Narrow – 10Yr Yield Falls Read More »

ETF Report – Tech ETFs Extend on Market Leading Rally – More Flag/Pennant Breakouts

Large-caps and tech stocks continue to lead the market with SPY and QQQ notching new highs. The Technology SPDR, Communication Services SPDR and Industrials SPDR also hit new highs, and the Finance SPDR is not far off. The leaders consolidated in late May and broke out in early June. We then saw consolidations form in the next

ETF Report – Tech ETFs Extend on Market Leading Rally – More Flag/Pennant Breakouts Read More »

Market-ETF Report – Bonds Break Out – Metals Remain Strong – Lithium and Bitcoin Set Up

ETFs related to commodities, bonds and crypto continue to feature prominently in the top twenty. In fact, 10 of the top 20 are related to these three groups. In a bull market, we typically see 15 or more equity ETFs in the top 20. This is because bull markets lift most equity-related boats. The table below highlights ten ETFs related to commodities, bonds and crypto (blue shading). Strength in these alternatives means

Market-ETF Report – Bonds Break Out – Metals Remain Strong – Lithium and Bitcoin Set Up Read More »

Market-ETF Video – Another Gap-Surge – Tech ETFs Lead – Commodities Pull Back

Stocks moved sharply higher the last two days with SPY surging 2% and gapping up on Tuesday. The Technology SPDR is leading the sector SPDRs with a gap-surge to new highs this week. Communication Services and Industrials are not far behind. Today’s video will follow up on the pennant/flag breakouts from early June and the Chandelier Exits. We also highlight some other flag/pennant formations. Elsewhere, commodity-related ETFs are pulling back and the Bitcoin ETF formed a bull flag. The 10-yr Treasury Yield broke down as the 7-10Yr TBond ETF broke out.

Market-ETF Video – Another Gap-Surge – Tech ETFs Lead – Commodities Pull Back Read More »

Market Regime Charts – NDX Stocks Lead – Spreads Show no Stress – 10Yr Breaks Down

The weight of the evidence remains mixed. Of the 15 signals on the first three charts, five are bullish and ten are bearish. SPY and QQQ are in long-term uptrends and Nasdaq 100 breadth is net bullish, but S&P 500 and S&P 1500 breadth remain bearish. Mid-caps and small-caps are still dragging their feet. A Zweig Breadth Thrust triggered on April 24

Market Regime Charts – NDX Stocks Lead – Spreads Show no Stress – 10Yr Breaks Down Read More »

Market-ETF Report – Cyclical Groups Bounce – More Pennants/Flags Take Shape

Stocks shrugged off the events in the Middle East and rallied on Monday. Small-caps, Consumer Discretionary, Home Construction, Banks, Infrastructure and Transports led the way higher. These are largely cyclical groups and relative strength suggest that the advance may be broadening. It is still early days, but I am seeing lots of pennants forming from mid May to June. Breakouts would

Market-ETF Report – Cyclical Groups Bounce – More Pennants/Flags Take Shape Read More »

Market-ETF Report – Commodity and Crypto Related ETFs in the Leadership Group

Commodity, crypto and a few bond related ETFs are leading. Our ETF Ranking shows that 10 of the top 20 are related to these alternatives. Equity ETFs make up the other ten, but equity alternatives remain, well, serious alternatives. In particular, metals-related ETFs continue strong (gold, silver, platinum, uranium). The Platinum ETF (PLTM), however, looks dangerously

Market-ETF Report – Commodity and Crypto Related ETFs in the Leadership Group Read More »

Market-ETF Video – Divergences Emerge – Pennants and Stops – Metals Lead

Nasdaq 100 stocks and QQQ are leading, but the weight of the evidence remains mixed for the broader market. After a big advance since early April, a pullback could be brewing as short-term bearish divergences take shape in S&P 500 breadth. We will cover the key breadth indicators, support levels for SPY/QQQ and the pennant breakouts in tech-related ETFs. Commodities remain strong with metals leading the way.

Market-ETF Video – Divergences Emerge – Pennants and Stops – Metals Lead Read More »

Market-ETF Report – Tech-ETFs Extend on Breakouts – XLK Hits New High – Banks Lag

Tech-related ETFs are leading in June as several broke out of pennants and extended higher. Today’s report will update these breakouts and their trailing stops. Despite continued strength in tech, I am seeing short-term underperformance emerge in mid-caps, finance, banks and consumer discretionary. These four are lagging the last 20 days because their respective ETFs have yet to clear their May highs.

Market-ETF Report – Tech-ETFs Extend on Breakouts – XLK Hits New High – Banks Lag Read More »

Market-ETF Report – Commodity and Crypto Related ETFs in the Leadership Group

Non-equity ETFs continue to perform well and feature in the top twenty. These include commodity, bond and crypto ETFs. This list expands when we include equity ETFs related to commodities, such as the Gold Miners ETF (GDX). GDX is part of the equity group because its components are stocks and stocks represent companies. This also applies to SIL, URA and BLOK. These ETFs are composed of stocks, not the underlying asset.

Market-ETF Report – Commodity and Crypto Related ETFs in the Leadership Group Read More »

Market-ETF Video – Pennant Breakouts and Trailing Stops – NDX Stocks and Metals Lead

SPY and QQQ continued to lead the broader market higher, but MDY and IJR caught a bid with pennant breakouts this week. In fact, there are lots of pennant breakouts, especially in leading tech-related ETFs. We will cover these breakouts and show suggestions for trailing stops. Industrial and precious metals are leading the market with huge moves the last few weeks. Crypto is also perking up as IBIT breaks a flag line.

Market-ETF Video – Pennant Breakouts and Trailing Stops – NDX Stocks and Metals Lead Read More »

Market Regime – QQQ and NDX Breadth Lead Market – Small/Mid Caps Continue to Lag

QQQ and Nasdaq 100 stocks continue to lead the market since the April low. QQQ extended higher and crossed the upper Bollinger Band on Wednesday for an uptrend signal. A breadth indicator also flipped bullish, which means the Nasdaq 100 indicator group is now net bullish (four of five). There are three indicator groups totaling 15 indicators. All indicators covering the S&P 500 and

Market Regime – QQQ and NDX Breadth Lead Market – Small/Mid Caps Continue to Lag Read More »

Market-ETF Report – Trailing Stops for Pennants – Utes, Staples and Insurance

SPY and QQQ continue to lead the market with leading breakouts in mid May. Small-caps surged over the last five days, but the S&P SmallCap 600 SPDR (IJR) remains below its falling 200-day SMA. IJR is also showing relative weakness. Despite strength and leadership in large-caps and large-cap techs, many are looking quite

Market-ETF Report – Trailing Stops for Pennants – Utes, Staples and Insurance Read More »

Market-ETF Report – Gold Miners Lead Gold – PALL Holds Upswing – ETHA Goes High and Tight

Despite the stock market surge from early April to early June, only a handful of stock ETFs are outperforming alternative asset ETFs. Commodity and crypto related ETFs account for twelve of the twenty year-to-date leaders in the all-weather ETF list, which has 74 ETFs. The year-to-date percentage change (YTD %Chg) is perfect for measuring performance because is encompasses the stock market

Market-ETF Report – Gold Miners Lead Gold – PALL Holds Upswing – ETHA Goes High and Tight Read More »

Market-ETF Video – NDX Stocks Lead – Flag/Pennant Breakouts – Commodities Still Leading

The broader market remains mixed with fewer than 50% of S&P 1500 stocks in long-term uptrends. Strength is concentrated in large-caps and large-cap tech stocks (Nasdaq 100). Several tech ETFs formed flag/pennant patterns the last two weeks and broke out. In an interesting twist, we are also seeing strength in Consumer Staples and Utilities, two defensive groups. Commodities remain strong, especially metals. Silver and Platinum broke out, while Palladium turned up.

Market-ETF Video – NDX Stocks Lead – Flag/Pennant Breakouts – Commodities Still Leading Read More »

Market Regime – ZBT and 5/200 Cross Bullish – Long-term Breadth Mixed

There is no change for the broad market environment, which is mixed, at best, and still bearish at worst. The weight of the evidence turns bearish in mid March and this signal has yet to be reversed. Keep in mind that SPY and QQQ are part of the broad market environment, but they are large-cap driven ETFs that do not always reflect conditions under the surface. Breadth indicators reflect conditions for the average stock.

Market Regime – ZBT and 5/200 Cross Bullish – Long-term Breadth Mixed Read More »

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