A Pause, Maybe?
Igor Manukhov - Jul 07, 2023
The momentum of this rally is slowing down. Indicators still point to a stronger market by the end of the year.
Last week, a rally pushed the market to a new high this year. However, momentum indicators, such as RSI and MACD, failed to make new highs (see pink lines). This set up is called a momentum divergence. It could be an early indication of market reversal or a pause.
Considering other secondary indicators, such as consumer discretionary stocks outperforming consumer staples stocks (talked about last week), as well as the continued decline of risky bonds spreads (outlined by a green arrow below), I do not expect any significant market weakness this time. I would be very surprised if the market goes lower than 4200-4300. If there is cash available, I would recommend to use any market weakness to buy high quality investments.