Strong July, Beware of Late Summer: 3 Charts to Watch

Highlights

• The upward trend in the S&P 500 remains intact and July is following historically strong patterns with sufficiently broad participation.
• The Bullish Percent Index remains above 50, and the percentage of stocks trading above their 200-day simple moving average supports a bullish move in the S&P 500.
• Seasonality is often volatile from August to October, so monitor breadth and sentiment gauges for early signs of changing market winds.

Despite a few brief roller coaster rides, the stock market had a strong week. There were some sales on Friday as well. S&P 500 ($SPX) and Nasdaq Composite ($COMPQ) was closed all week, but Dow Jones Industrial Average ($INDU) closed down 0.07%.

Earnings season has started on a positive note for large banks and corporations. Netflix, Inc. (NFLX) reported better-than-expected earnings. Inflation remains relatively moderate and the labor market remains resilient. This helped boost the trajectory of the stock market, with sectors such as technology, industrials and financials showing strong gains. Small-cap stocks are hanging in there too, although they have pulled back a bit.

This price action supports widespread participation in the market. that S&P 500 Equal Weighted Index ($SPXEW) also remains strong, trading above the 20-day exponential moving average. This tells us that participation is not limited to a few giants.

Take a look inside

Overall growth still takes center stage and so far July is following seasonal patterns. If you look at the seasonality chart below, you can see that over the past 10 years July returns have been positive, averaging 3.30% each year.

Switching to a line chart on the same scale (years removed for clarity), we can see that even in 2020 and 2022 when the S&P 500 was in negative territory, July was still a strong month.

As we move into late summer and early fall, seasonality changes noticeably. While this doesn’t guarantee a weak August, it does support the argument for remaining vigilant. It’s like driving on a winding road. Just hold the steering wheel with both hands without slamming on the brakes.

How to track overall market performance

For a bird’s eye view, the StockCharts Market Summary is the best page, but after drilling down, one of my go-to charts in my Market Analysis ChartList is the S&P, which includes the Bullish Percent Index (BPI) and the percentage of S&P 500 stocks trading above their 200-day moving average. This is a 3-year weekly chart of the 500.

The range between the open and close prices is relatively narrow, but the trend is still high. The BPI has been above 50 but is leveling off, and the percentage of stocks trading above their 200-day moving average is also decreasing. None of the breadth indicators suggest that we will see a huge sell-off in the coming days.

that Cboe Volatility Index ($VIX) is low and investor sentiment is bullish (you can see this in the Sentiment panel on the Market Summary page).

Will growth continue for the rest of the year?

There are many variables that can change between now and the end of the year, from government policies to geopolitical tensions. These changes are reflected in market breadth and sentiment charts.

tip: StockCharts members can download the Market Summary ChartPack to include charts on their ChartLists pages. You should keep an eye on this chart for signs of major changes in market price movements.

weekend wrap up

stock market weekly performance

• Dow Jones Industrial Average: 44,342.19 (-0.07%)
• S&P 500: 6,296.79 (+0.59%)
• Nasdaq Composite: 20,895 (+1.51%)
• $VIX: 16.41 (+0.06%)
• Top performing categories this week: technology
• Worst performing sectors this week: energy
• Top 5 Large Cap SCTR Stocks: AST Spacemobile, Inc.(ASTS);Nuscale Power Corp.(SMR);Robinhood Markets Inc.(hood);Avis Budget Group (automobile);Symbiotic Co., Ltd.(SYM)

On the radar next week

• June home sales
• June Durable Goods Orders
• Several Fed Speeches
• import Alphabet Inc. (google), Tesla, Inc. (TSLA), AT&T Corporation (tea), Intel Corporation (INTC), international business machine (IBM), etc.

disclaimer: This blog is for educational purposes only and should not be construed as financial advice. You should not use any of our ideas and strategies without first evaluating your personal and financial situation or consulting a financial professional.

About the author:

Jayanthi has been the Technical Analysis Editor for Stocks & Commodities magazine for over 15 years. At StockCharts, she works to educate investors and find ways to make technical analysis more accessible and intuitive. Learn more