In the past few weeks we have seen gold form another double bottom and we have also seen stock market internals continue to fade. That latter trend is continuing this week. That doesn’t mean the market is going to crash, but you do need to know what it does mean.
What do I mean by internals?
Take a look at this chart, which shows you the percentage of stocks above their 200-day moving averages.
The internals are trending down and made a new low yesterday. This means that more stocks trading on the NYSE have been declining since this indicator peaked in June than have been going up.
While this indicator has gone down, the S&P 500 has gone up, even though it fell yesterday.
This is an obvious negative divergence and warning sign for the market as it tends to signal a coming stock market top or the start of a major correction. However, this divergence can continue for weeks, even months, until it matters for the stock market averages. They can act strong, because a few stocks can help them go up, even if most stocks fade.
What you need to be aware of is that there are many past fad stocks now in deep downtrends. This is why the ARKK ETF is now doing so bad, and why I personally am now short many of the Cathie Wood wonder stocks that are inside of.
I did a video going through the stocks I am short and why on Monday. If you missed it you can find it here.
This doesn’t mean I think the stock market is going to crash. Even though momentum is not what it was, the market averages can simply take a breather for awhile instead of collapsing. But, that is not enough to take a lot of air out of the weak trending past fad stocks that sadly many own as they make up much of the Robinhood top 100 most owned list.
I’m only shorting with a portion of my money and am more long than short. I’m acting like a hedge fund and I still think we got a good buy spot in commodities and commodity related stocks here.