Deep Dive Update for Monday August 4, 2025

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The deep dive video update, prepared for Monday, August 4th, 2025, analyzes various market indicators to assess the overall market sentiment and potential trends. Key points include:
1. Long-Term VIX (Volatility Index): The daily VIX rose above 20 on Friday, indicating increased market fear in the short term. However, the 50-period exponential moving average (EMA) of the VIX is still declining, suggesting a more positive longer-term outlook. The VIX-to-S&P 500 correlation remains low, and the VVIX (volatility of VIX) ratio is declining, which is positive as long as this trend continues.
2. Ulcer Index: This sentiment gauge ticked up due to Friday’s negative market action, surprising investors. August and September are often bearish months, so the index will be monitored to see if it crosses above its moving average, signaling a more significant decline.
3. Volatility and Bonds: The MOVE index (bond volatility) declined on Friday, reflecting a flight to safety as investors moved from stocks to bonds, with interest rates dropping. The 50-period EMA of the stock-to-bond volatility ratio is slightly up but still declining overall, which is positive unless the trend reverses.
4. Large Caps vs. Small Caps: Small caps were hit harder than large caps on Friday, causing the large-cap-to-small-cap ratio to rise. This suggests relative strength in large caps despite the market decline.
5. Market Levels and Moving Averages: The market is still above anchored moving averages from 2022, 2023, and April 2025 lows, which could act as support around the 5800 level for the S&P 500. However, the market closed below the 20-day moving average, turning the short-term trend negative. The intermediate-term trend remains positive as the S&P 500 is above the 50-day moving average.
6. Advance-Decline Lines: The S&P and NYSE advance-decline lines pulled back after hitting highs, with the NYSE dropping below its 50-period moving average, signaling potential weakness. Short-term advance-decline ratios based on price and volume also turned negative.
7. Momentum and Sector Performance: Momentum stocks, which typically hold up better, weakened in late July. U.S. stocks slightly outperformed international stocks, but no major insights emerged. Gold rose as a safe haven, while most other technical alerts turned negative on Friday.
8. Index Rankings: The NASDAQ scored highest at 79.1, followed by the NASDAQ 100 (78.2), S&P 500 (59.7), Dow (20.5), mid-caps (14.2), and small caps (10.2). Scores deteriorated significantly after Thursday and Friday’s declines.
9. Technical Indicators:
The short-term rainbow chart shows the market below the 20-period moving averages, indicating a bearish short-term outlook. The intermediate-term rainbow remains positive.
Bollinger Bands tightened, suggesting potential for a significant move, but the direction (up or down) is usually unclear.
The Ichimoku cloud shows short-term bearishness as the market dropped below key lines, but it remains above the cloud, which could provide support.
The Mass Index on the weekly chart signaled a potential reversal, which may now be playing out with the recent decline.
10. Sector and Ratio Analysis:
The S&P 100 outperformed the S&P 500, indicating strength in larger stocks.
Regional banks underperforming the financial sector, and retail weakened below its 50-day moving average.
Growth-to-value and tech-to-utilities ratios declined, reflecting weakness in growth sectors such as biotech and discretionary stocks.
Gold-to-S&P ratio ticked up as stocks fell, but stocks still outperforming gold overall.
11. Bonds and Yields: Bonds rallied on Friday, with yields dropping, suggesting no immediate market concern about inflation or rising rates. The 10-year to 3-month yield curve is inverted, a potential recession signal once it switches back.
12. Global Markets: The German DAX fell below its 50-day moving average, and U.S. stocks are outperforming European stocks. The Eurozone underperformed U.S. bonds, showing relative weakness.
Conclusion: The market turned bearish in the short term after Friday’s decline, with increased fear (VIX spike) and a flight to safety (bonds, gold). Small caps and growth stocks were hit hardest, and technical indicators such as advance-decline lines and moving averages suggest caution. However, longer-term trends remain positive unless key support levels (e.g., 50-day moving average, anchored moving averages) are breached. Investors should watch for continued declines in August/September or signs of a potential bounce.

PDF of Slides:
https://drive.google.com/file/d/10l_q-s4X0mqrOqcygDYawhM1ZrySQi5b/view?usp=sharing

DISCLAIMER This video is for entertainment purposes only. I am not a financial adviser, and you should do your own research and go through your own thought process before investing in a position. Trading is risky!