Mixed signals in stock market

Summary

1. Stock market in sideways chop.

2. Healthy rotation or a shift to a risk-off sentiment?

3. The gold and Bitcoin rallies are approaching a decisive moment.

Quick Recap: The Previous Week

Last week, the Kvarn Pulse newsletter was written on a rather mixed mood.

The S&P 500 index had returned above its 10-day moving average. However, slightly concerning was the fact that the 10-day moving average was below the 20-day moving average, and both of these averages were in a downward trend.

Mixed signals in stock market

A week later, we start our analysis by highlighting the most important point: right now, the stock market's development is particularly challenging to interpret.

Part of this difficulty stems from index movements. Since May, the S&P 500 index has chopped back and forth around the 7,400–7,500 points range, deviating from this in either direction only momentarily.

Right now, the index is hovering right around its 200-hour moving average. Due to the sideways movement, this average has practically turned completely horizontal, making it less useful as an indicator.

The daily chart, on the other hand, currently provides grounds for an optimistic interpretation.

The S&P 500 index has stayed above both its 10-day moving average and 20-day moving average. The 10-day moving average, in turn, has risen above the 20-day moving average, and the 20-day moving average has turned upward. On a daily timeframe, everything looks pretty bullish.

While examining the S&P 500 index leads us to neutral or cautiously optimistic interpretations, the internal dynamics of the stock market offer more reasons for caution.

The technology sector, which has acted as the engine of the stock market rally, began to show slight weakness in early June and dipped below its 200-hour moving average.

In the previous Kvarn Pulse newsletter, we highlighted an internal divergence within the technology sector, noting the contrasting performance between the heavily weighted Mag 7 companies and the semiconductor companies, which drove the spring rally.

At the time, we expressed our belief that the next clear move in the stock market might be seen when the Mag 7 companies and semiconductors settle on the same side of their 200-hour moving averages.

On Wednesday, July 8, 2026, both have now, at least momentarily, fallen below their respective 200-hour moving averages.

As long as this state of affairs persists, we believe it warrants caution. It is hard to see the S&P 500 index making a significant upward move without the participation of the Mag 7 and semiconductor companies.

However, the S&P 500 index has so far been sustained by support from other sectors. The S&P 500 index excluding the technology sector has continued to look strong, and the price of the ETF representing it (SPXT) has reached new highs over the past week.

The weakness of the heavily weighted technology sector combined with the strength of the rest of the stock market has resulted in the aforementioned trendless, sideways movement of the S&P 500 index.

In our view, interpreting the situation is made challenging by having to balance the following two factors:

The April-May stock rally was historically tech-heavy. After such an extremely concentrated upward move, it is quite natural to see things level out within the stock market, with capital rotating into other sectors, which would manifest as weakness in the technology sector.

On the other hand, we need to be able to identify at what point this is no longer a healthy rotation, but rather capital fleeing into defensive sectors in anticipation of a market correction.

In our view, we are entering a territory where our primary expectation still leans slightly toward the first option, but we must also begin taking the second option seriously.

From the chart depicting the ratio of growth (RPG) to value (RPV) ETFs, we can see how the stock market's lead began to oscillate back and forth in May.

The RPG / RPV ratio has just now reached the exact same level it hit during its early June bottom. We consider this a level from which we would expect the ratio to turn back up, provided the market's risk appetite remains intact.

Conversely, if we see this level fail, it would suggest that the back-and-forth oscillation has ended and investors have shifted more firmly to a cautious stance. This would give us reason to prepare for clearer downward moves at the index level as well.

Up until last week, we were ready to dismiss the technology sector's weakness as merely a natural rotation of capital. A key part of this interpretation was the improving market breadth, which was reflected in the continuous record highs of the equal-weighted S&P 500 index.

Over the past week, however, we have started to see the first cracks in this interpretation.

In recent days, the equal-weighted S&P 500 index has dropped below its 10-day moving average.

Our optimism, which lasted until last week, was also supported by new record highs from the Russell 2000 index, representing smaller companies.

Over the past week, however, we have seen the Russell 2000 index dive below both its 10-day moving average and 20-day moving average.

Slight cracks have also appeared in actual market breadth in recent days.

The stock market is therefore fascinatingly ambiguous right now. Major indices have moved sideways, and more defensive sectors have strengthened at the expense of the technology sector.

Our view is that we are now at a threshold where this development needs to be monitored particularly closely. If this trend continues into next week, we will have to take the possibility more seriously that we might be seeing something akin to early 2025 and early 2026.

On both of those occasions, the stock market transitioned into a sideways movement at the index level, and the subsequent sudden weakness shown by growth companies preceded a clear downward move shortly after.

However, we are not predicting such a downward move just yet.

VIX index, which often signals market nervousness, spiked momentarily on Wednesday, July 8, 2026, following news suggesting an escalation in the Middle East conflict, but it quickly returned below its 200-hour moving average.

The MOVE index has also stayed below its own 200-hour moving average, pointing to calm in the bond markets as well.

Gold and Crypto: Will the Rally Continue?

Last week, we highlighted the price of gold stabilizing around $4,000.

Over the past week, we have seen a small counter trend rally that brought the price up to a peak of around $4,200. Right now, however, it looks as though this rally might be stalling before the price has crossed the first significant threshold, a trendline drawn from previous local peaks.

If this is indeed a new lower high, it forces us to prepare for the possibility that the downtrend will continue and we could see new lows next.

If this happens, it will be interesting to see if the local bottom of $3,900 seen late last year holds. If buyers cannot be found at this level to halt the decline, we might have to look all the way back to the summer 2025 level, around $3,300.

We emphasize, however, that while this counter trend rally has not yet proven to be a true trend reversal, we also haven't seen it convincingly break down yet. The situation is still clearly unresolved, and stronger interpretations should only be made when the price of gold either breaks above $4,200 or drops below $4,000.

The price development of the largest cryptocurrency, Bitcoin, has recently largely mirrored the price action of gold. Both have suffered from a strengthening dollar and have been in a steep decline over the past few months.

Like gold, Bitcoin has also seen a counter trend rally over the past week. Similar to the gold rally, Bitcoin's upward move is showing some signs of fading below $65,000, but it hasn't definitively broken down yet.

As with gold, the next interesting question regarding Bitcoin's price is whether we will see new lows, meaning a dip below $58,000. So far, enough buyers have been found around the $60,000 area that it has only dipped below it momentarily.

On the other hand, Bitcoin's upcoming price development is also interesting to watch from the perspective of the stock market concerns we raised earlier. Over the past year, new lows in Bitcoin have quite reliably provided a warning of a weaker period ahead for the stock market (from an uptrend to a sideways movement, and from a sideways movement to a downtrend).

If we were to see new lows from Bitcoin in the coming weeks, it would prompt us to prepare more explicitly for a stock market correction as well.

Conversely, if Bitcoin's price were to break above the $68,000 level, this would be an extremely interesting signal. It would suggest that the market's risk appetite has found a new gear and would fundamentally be a strong positive sign for cryptocurrencies, stocks, and likely precious metals as well.

It seems, then, that in this ambiguous market environment, Bitcoin's price might turn out to be the best guide. A drop below $58,000 would make us quite cautious, while a rise above $68,000 would be a highly encouraging sign. Bitcoin's price has often been the fastest to reflect changes in market risk appetite, and we wouldn't be surprised if the market's next clear move could be read directly from Bitcoin once again.

We are living in interesting times in the financial markets. The stock market has consolidated over the past few weeks, and the market has reached a sort of temporary equilibrium. It looks as though the next bigger move could be near. The price action of gold and Bitcoin gives some reason for caution, but it is still too early to say in which direction the situation will truly develop. The current situation is fascinatingly open to interpretation. Wherever the market goes, we will continue to monitor the situation and keep you up to date, so stay tuned!