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The last free market outlook (from June 25) encouraged a simplified approach mixed with patience, it stated:

“Blue box support (for the S&P 500) has been around 5,970, and as long as that support holds, the S&P 500 can continue to grind higher. Yes, this is a very simple way to analyze a complicated market (and world), but this simple approach has been more effective and less mentally draining that most others.”

Blue box support has held and the S&P continued to grind higher. The grind was persistent and painfully boring.

It wasn’t until July 23 when I changed my outlook from looking for further upside to one of caution. The July 23 Profit Radar Report brought out the following:

“Periods of calm, like this, are not uncommonly interrupted by an ‘out of nowhere’ down day that erases weeks worth of gains. This is a statement based on experience, not necessarily because it's implied by the chart. For example, a quick 3% drop - in the coming days - would lead to a test of the lower short-term trend channel boundary. This doesn’t have to happen, and as long as the S&P 500 stays above the long-term trend channel (currently at 6,280) it’s best to allow for more up side wiggles, but chasing the up side at this point comes at the risk of a quick drop.”

As the S&P 500 log scale chart above shows, since last Monday’s (July 28) all-time high, the S&P 500 fell almost 3% and tested the blue short-term channel (green circle).

However, Sunday’s (August 3) Profit Radar Report highlighted that the S&P 500 was over-sold (as of Friday’s close, green arrow), the CBOE put/call ratio was at 0.99 (unusually high for such a small drop and indicative of a bounce), and that the open chart gap at 6,327.64 had to be filled.

Monday’s 1.47% bounce relieved the over-sold condition and filled the open chart gap.

What’s next?

Here is the summary I provided in Sunday’s Profit Radar Report: “The S&P already reached the trend channel support mentioned in the June 23 PRR and is over-sold, with an open chart gap, so the odds for a bounce from here are good. Unless the S&P drops below support (starting at 6,195), I’d say this is a low-risk entry to buy. However, the up side and bounce potential seems limited as well. We may see some up and down chop before the market settles on a direction for the next few weeks (which should be lower eventually).”

Although my recent approach has been a simple one, in the background I’m always checking to see if there are any crosscurrents or curveballs waiting. Over the weekend, I published in depth investor sentiment and market breadth tests.

Investor Sentiment

Based on 9 different sentiment indicators, the chart below highlights other periods of time with the most similar sentiment while at an all-time high (as was the case on Monday, July 28).

Market Breadth

Based on 6 different market sentiment indicators, the chart below highlight other periods of time the most similar breadth readings.

None of the above studies reveal a consistent outcome or contradict our current outcome. 

I would have preferred to see precedents that project a strong future directional bias. Although that’s not the case, consistently running studies like the above helps to keep a pulse on the market and tells us there is no reason to change our existing outlook.

... and of course, there is the 96-year trend channel, which has kept the S&P 500 in check since late 2024 (blue ovals), and should still be watched. 

Continued updates and factual out-of-the box analysis are available via the Profit Radar Report. 

The Profit Radar Report comes with a 30-day money back guarantee, but fair warning: 90% of users stay on beyond 30 days.

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