Will Seasonal Bears Burst Rally Bubble?

2021-08-02

A stretch for new highs was met with a retreat from the rally to start the week.

Did this sharp hesitation signal the market is shifting into the bearish seasonality expected this time of year?

As we’ve seen for 18 months, this market can at any time blow past “norms” or quickly give way to expectations. This year’s bearish seasonality could easily be left napping while the market races to more all-new highs.

The next 60 days could be very revealing about the stability of this market.

August and September are seasonally the two most bearish months of the year, but this market appears determined — and resilient enough — to maintain arguably the largest and most persistent bubble ever.

Will the bears win this seasonal battle or will the bulls force a run higher?

The market appears to be maintaining the upward structure, yet there is a sneaky suspicion — highlighted by internal signals — that momentum is not “correct.”

This is based on the market pushing toward “higher highs” with lower momentum than when it hit previous all-time highs. 

In today’s session the market raced higher out of the gate (at one point the Dow hit an intraday all-time high) only to surrender gains in the afternoon which may bear out this suspicion.

Action today offers an opportunity to let the market work out any rage against the seasonality before committing too strongly in either direction.

We will continue watching for good volume this week with an understanding the next two months may invite some cranky bears to the market.

We Saw: Rally higher met with harsh intraday reversal —

  • Seasonality signals market shift in August
  • Treasury prepares to counter missed debt-ceiling deadline
  • Expectations grow for strong travel sector earnings reports

We’re Watching: For a market signaling solid momentum —

  • Remembering that if we’re out… we can always get back in later
  • When out with a gain, no complaints about “money left on the table”
  • Setups in: NVDA, SHOP, ENPH