Proceed with Caution
Igor Manukhov - Jun 23, 2025
The market might take a well-deserved time off. Any weakness should be used to accumulate assets.
After an incredible come back in April and May, the market is starting to slow down a bit. That is expected. Nothing goes up in a straight line. Going through my charts this week, I noticed divergences that merit attention. Divergence happens when a price movement “diverges” from indicator readings. Some important relationships that I track include relationship between market price, momentum (RSI indication on the second panel) and market breadth (Bullish Percent Index on the bottom). When the market is going up, you want momentum and participation to increase as well (or at least stay steady). When the price is advancing but the momentum or participation is going down, that is divergence.
As you can see from charts below, we are having a participation and momentum divergence now (marked with blue lines on the chart). That setup does deserve attention. The most recent example of a similar divergence was earlier this year (marked with red lines), and a bear market followed.
I want to make it clear that I do not expect another bear market to develop this year. Divergencies should be treated as a warning sign. They usually indicate that a better price could be expected ahead or, at the very least, that the market needs time to digest recent advances. I would advise to get ready to put funds to work when prices cool off a bit.
