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Despite Last Week’s Rally Stock Market, Internals Still Weak (Key Charts) – Mike Swanson

This is going to be an interesting week for the markets. We have another FOMC announcement set for Wednesday and earnings reports from AAPL, MSFT, AMZN, GOOG, and FB all set for either Tuesday or Wednesday. All of these stocks are outperforming the S&P and Nasdaq and all by themselves they helped to power the stock market up last week, after a Monday dump.

I’ll be watching how these stocks trade after their earnings reports. How things look by the end of Thursday will be a big sign of how the market is likely to trade out in the weeks to come. If these stocks report and surge through the end of this week that will be a sign that the market is likely to continue higher through August, but if they fade then the market is likely to roll over.

You can see from this hourly chart how all of these are rallying strong than the fad ARKK ETF, which typifies the type of fad stocks that dominate the Robinhood top 100 most owned stocks list.

On Tuesday I did a video saying how these five stocks would likely be the strongest stocks on the rally. And now it is clear that assumption was correct.

How did I know that would happen?

Because, the week before the internals were weak, meaning most stocks in the market were fading. And this week the internals were still weak. On the NYSE the percentage of stocks above their 200-day moving average went down, instead of up and despite the fact that the S&P 500 made a new high on Friday.

The internals for the Nasdaq are even worse for the NYSE and the S&P 500.

This internal weakness is what happens towards the end of a big market rally or the start of a correction and when it does leadership shifts into a few big cap stocks and when the market does rally they lead. And if you like the advance/decline line indicator, it is showing the same thing.

And despite the fact that the S&P 500 made a new high last week, the buying volume pressure also is weakening.

All of this leads to a classic pattern that I have seen play out dozens of times in the past at the end of a rally.

And it’s simply happening again.

It completes when the stocks peak and top out and then everything can dump.

But maybe they won’t peak this week. Perhaps FB and AAPL will report earnings and rally all week into the weekend. Let’s watch and see how things shake out.

BTW – very few people know this happening who are currently trading the markets. The frame of reference for millions of people is now what they see from their Robinhood app, which shows them no meaningful charts, and instead just lists of what others own, and daily price gyrations, which when combined together causes them to trader in a herd. They are like a pilot flying in the dark without any instruments.