Bears Break In: Breadth Plunges Further Amid Economic and Political Shocks – The Market Breadth

Stock Market Commentary

Finally the bears break in on all the fun the bulls have had for months. The stock market got overwhelmed with a flood of bad news that was just too difficult to ignore or look through (for now). The July jobs report was not just weak but also it included a massive and historic downward revision: “Revisions for May and June were larger than normal. The change in total nonfarm payroll employment for May was revised down by 125,000, from +144,000 to +19,000, and the change for June was revised down by 133,000, from +147,000 to +14,000.” Suddenly, the economy looks a lot weaker, and the pressure will increase on the Fed to lower interest rates despite mounting inflationary pressures from tariffs.

The U.S. Bureau of Labor Statistics (BLS) matter-of-factly explained the revisions as the result of “additional reports received from businesses and government agencies since the last published estimates and from the recalculation of seasonal factors.” The President preferred a political explanation and unceremoniously fired the head of the BLS, accusing her, with no proof, of manipulating the numbers to make Republicans look bad….even though, ironically enough, these bad numbers will get Trump the rate cuts he has been demanding since he got into office. A market already teetering from recalibrating over the economy’s true state also needs to recalibrate on how to interpret ever more politicized government data and research.

As if the jobs report was not bad enough, the market got slammed by the August 1st deadline on certain reciprocal tariffs. For example, Canada received a 35% tariff, and transshipped goods got a 40% tariff. The increasing costs of tariffs look more real than ever…and incrementally harder to overlook.

Geopolitical tensions added a bonus headache for markets and an even wider opening for bears to break in. A war of words between President Trump and former Russian President Dmitry Medvedev, now deputy chairman of Russia’s Security Council, over the war in Ukraine escalated into Trump announcing the movement of nuclear submarines, presumably closer to Russia. While this saber-rattling will likely settle into the background in due time, I am guessing financial markets on Friday were more vulnerable than usual to such provocative headlines. Recall that I think World War Three is now over three years old so none of these tensions surprise me. Also take heed that if a nuclear war breaks out, selling stocks should be one of the last things you worry about…I will sure not spend time writing about deeply oversold market conditions.

The Stock Market Indices

S&P 500 (SPY)

The S&P 500 confirmed Thursday’s bearish engulfing top with a 1.6% loss and breakdown below support at its 20-day moving average (DMA) (the dashed line). The index only needs to match Friday’s 101 point drop to next test 50DMA (red line) support around 6,130. If that test happens quickly, a convenient bounce from support becomes a good risk/reward trade; if buyers swoop in too soon, pricing action may churn and consolidate. Note that the last time the S&P 500 traded below its 20DMA was in the middle of April’s trade drama, trauma, and noise.

Also note that Friday’s 1.6% loss creates an instant 1.6% drawdown for August, the first of the stock market’s three most dangerous month’s for drawdowns. The median maximum drawdown for August is just over 2% and the average is just over 3%. In other words, a 50DMA test should present a very good buying opportunity for an August trade for an “average” August season.

NASDAQ (COMPQ)

Like the S&P 500, the NASDAQ broke below its 20DMA support for the first time since April. A repeat of Friday’s 472 point loss would create a test of 50DMA support for the tech-laden index. One more reason why I want to see (but doubt we will get) a swift 50DMA test.

iShares Russell 2000 ETF (IWM)

IWM, an ETF of small caps, traded below both its 200DMA (the blue line) and clung to 50DMA support with a 2.0% loss. With a close below its lower Bollinger Band (BB) I am hopeful for a bounce. Accordingly, I bought a weekly calendar call spread at the $220 strike. Of course, if Monday delivers a swift test of 50DMA support for the S&P 500 and/or the NASDAQ, I fully expect IWM to suffer a deep 50DMA breakdown.

The Short-Term Trading From Fragile to Fearless

• AT50 (MMFI) = 43.1% of stocks are trading above their respective 50-day moving averages
• AT200 (MMTH) = 44.8% of stocks are trading above their respective 200-day moving averages
• Short-term Trading Call: neutral

AT50, the percentage of stocks trading above their respective 50DMAs, tumbled about 32 percentage points from overbought (over 70%) to 43.1% in just 7 trading days. In that same time, AT200, the percentage of stocks trading above their 200DMAs, fell about 13 percentage points from confirming all-time highs on the S&P 500. This steep, panic-style retreat from many stocks suggested broad internal weakness even as large-cap indices held at highs. I grew increasingly wary of this bearish divergence until Thursday’s market breadth implosion confirmed a sharp deterioration in the market’s technicals.

In my previous post I referred to risk management as a result of the bearish divergence between falling market breadth and a levitating stock market. My risk management expanded throughout the week. When market breadth finally imploded on Thursday, I noted that the signal was bearish but the stock market remains well-supported. Thus, I am anticipating the next buying opportunity in the stock market rather than rushing to short.

While I see no reason to get bearish until/unless the S&P 500 confirms a 50DMA breakdown, I worry about the bearish implications of IWM failing to hold its 50DMA support. Similarly, I am warily watching the Invesco S&P 500 Equal Weight ETF (RSP) clinging to 50DMA support after printing a potentially bullish hammer pattern.

The stock market has been on quite a journey since I changed from neutral to cautiously bullish on March 5th with the S&P 500 testing 200DMA support. That support quickly gave way to a breakdown, a fade from 200DMA resistance and then, following the AT50 trading rules, a trading call change to bullish as the stock market plunged into oversold conditions on April 3rd. Per the trading rules, I held my ground and kept buying even as oversold conditions dragged on. I finally stepped back to cautiously bullish as the S&P 500 rushed to 50DMA resistance. The trading call stayed there until last week.

I learned my lesson from previous oversold episodes that I tend to get too conservative, too quickly by going into neutral. This time, I feel like I am shifting into neutral at a good time to get more conservative. Market breadth has crashed. The Federal Reserve is trapped between a weakening economy and rising inflation. The stock market started its most dangerous months of the year by confirming a bearish engulfing top with a gap down away from all-time highs and a close below the 20DMA uptrend for the first time since April 22nd.

Whew!

The Volatility Index (VIX)

The volatility index (VIX) has been meaningless since faders fully reversed the tariff-driven VIX spike. Now the VIX is on the move again. Thursday’s 8% surge in the VIX served as an early warning of what unfolded across the market on Friday. Now with the VIX above 20, this fear gauge is in “elevated” volatility territory. If the market draws down sharply on Monday, then a 50DMA test will accompany a fadeable surge in the VIX to, say, 25 or 26. That move would signal an overextended volatility environment and open the door to bullish trades like selling puts. In a “worse case” scenario, the VIX could run to around 30 before topping out…assuming no new bearish catalysts emerge.

Finally, I decided to present a large number of individual stocks because of the heightened action and the increased stakes. I made a number of trades in my own holdings for further risk management or in some cases to take advantage of what looks like over-extended selling. I explain a number of these moves below.

---

The Equities: Bears Break In

Amazon.com (AMZN)

Description: Amazon.com (AMZN) is a global e‑commerce and cloud services giant.
Technical status: I observed Amazon break decisively below its 50DMA post‑earnings, falling over 8% with 200DMA support waiting below.
Trade commentary: I placed a calendar call spread at the $225 level—with the long leg expiring in two weeks and the short leg next Friday—expecting a delayed recovery and hoping the short decays to offset my long cost.

Apple Inc. (AAPL)

Description: Apple Inc. (AAPL) is a consumer electronics and services leader known for the iPhone, Mac, and services.
Technical status: Apple gapped higher post earnings, reversed sharply, and closed below its 50DMA—forming a bearish engulfing reversal and a gap and crap from the intraday top.
Trade commentary: I am short Apple (long AAPD) for a longer time span based on earlier technical deterioration, and today’s price action confirmed that the breakdown in technical structure is continuing.

Meta Platforms (META)

Description: Meta Platforms (META) is a social media and technology company operating platforms like Facebook, Instagram, and WhatsApp.
Technical status: Post‑earnings, META rallied over 11% but faded back toward its prior all‑time high resistance.
Trade commentary: The uptick likely overextended buyers, and if META closes below its former high—that line becomes a bearish confirmation level.

Microsoft Corp. (MSFT)

Description: Microsoft Corp. (MSFT) is a global leader in enterprise software, cloud computing, and AI services.
Technical status: MSFT gapped up post earnings and then reversed sharply, forming a “gap and crap” pattern that ended with a 1.8% loss. Despite initially joining the $4 trillion club, the stock faded dramatically.
Trade commentary: I am looking for a “calm after the storm” pattern, where the selling slows and a base forms, setting up a potential resumption of the prior uptrend. I do not want to miss an opportunity to add MSFT back to my generative AI list.

Alphabet Inc. (GOOG)

Description: Alphabet Inc. (GOOG) operates the Google ecosystem, providing search, advertising, cloud, and AI solutions.
Technical status: GOOG gapped up on earnings and stalled in a calm after the storm setup, never surpassing its post earnings intraday high before sellers took over and erased all gains.
Trade commentary: GOOG remains above its 20DMA and is bullish. I am watching for support here or at the 50DMA to consider another buy.

Nvidia Corp. (NVDA)

Description: Nvidia Corp. (NVDA) is a semiconductor and AI hardware company powering gaming, data centers, and autonomous technologies.
Technical status: NVDA dipped 2.3% but bounced firmly off 20DMA support, maintaining a clean uptrend.
Trade commentary: I am keeping NVDA on the short-term trading radar. The technical trend is intact and strong.

Albemarle Corp. (ALB)

Description: Albemarle Corp. (ALB) is a global producer of lithium and specialty chemicals.
Technical status: Albemarle tested its 50DMA as support after an orderly decline through earnings, outperforming Friday’s market despite breaking below its 200DMA, which remains in a long-term downtrend.
Trade commentary: I am considering buying more ALB if the stock prints a second higher close. I still like the 50DMA breakout and support retest, though I am wary of the long-term 200DMA trend.

Sarepta Therapeutics (SRPT)

Description: Sarepta Therapeutics (SRPT) develops genetic medicines for rare diseases, including Duchenne muscular dystrophy.
Technical status: Sarepta gapped up ~14% after FDA approval to resume drug sales, but long-term technicals remain broken.
Trade commentary: I am done trading this name. The market called the recent bottom correctly, but I see too much risk in this broken stock.

Novo Nordisk (NVO)

Description: Novo Nordisk (NVO) is a global healthcare company specializing in diabetes care and hormone therapies.
Technical status: After a failed 50DMA breakout, NVO plunged 22% post earnings and continued selling amid leadership change and sector headwinds.
Trade commentary: I want to sell into the next rebound as the administration pushes toward price controls in the pharmaceutical industry. The activist investor news was a classic sell-the-news moment, and this is now a broken rental stock to exit. I will give NVO one last chance in the next earnings report.

Uber Technologies (UBER)

Description: Uber Technologies (UBER) is a technology platform offering ridesharing, food delivery, and freight services globally.
Technical status: UBER broke down below its 50DMA and remains technically bearish, but longer-term support levels still matter.
Trade commentary: I am building a long-term position but will only buy more if the stock tests its 200DMA around $77, not the May/June double bottom.

Dollar General (DG)

Description: Dollar General (DG) is a discount retailer offering household essentials across rural and suburban U.S. markets.
Technical status: DG has sold off most of July but jumped 3.5% on Friday. The stock is approaching converged resistance at its 20DMA and 50DMA.
Trade commentary: I am watching for a breakout above this converged resistance to re-enter the stock. Buyers seem to want to defend the remaining post-earnings gains.

Polaris Inc. (PII)

Description: Polaris Inc. (PII) designs and manufactures powersports vehicles, including snowmobiles, ATVs, and motorcycles.
Technical status: PII surged 16.8% post earnings but gave the gains all back and now rests on converged 20DMA/200DMA support.
Trade commentary: I am watching for a calm after the storm pattern to develop. If support breaks, I will take PII off the watch list.

Impinj Inc. (PI)

Description: Impinj Inc. (PI) provides RFID solutions that connect physical items to digital systems.
Technical status: PI broke out 26.5% post earnings above its 200DMA and held most gains with only a mild pullback on Friday.
Trade commentary: I did not risk buying ahead of earnings despite the tempting technical setup. The stock is building bullish momentum.

Whirlpool Corp. (WHR)

Description: Whirlpool Corp. (WHR) manufactures home appliances under brands like Whirlpool, KitchenAid, and Maytag.
Technical status: WHR collapsed 13.4% post earnings and continued sliding after a false 200DMA breakout in July. The stock is no longer benefiting from the bearish to bullish reversal for the stocks of home builders.
Trade commentary: In mid-July, I made the case for buying puts in WHR. I held and added to my puts based on weak technicals. A proposed dividend cut reinforced the bear case. I took profits during the 13.4% post-earnings loss.

United Parcel Service (UPS)

Description: United Parcel Service (UPS) provides global package delivery and supply chain logistics services.
Technical status: UPS fell 10.6% post earnings and continues to plunge, trading below its lower Bollinger Band with heavy volume.
Trade commentary: I took a contrarian bullish trade by selling a put and using the premium to buy a call. If assigned shares from the short put, I will continue hold, and even sell calls against the position. A breakdown below the pandemic lows will invalidate my optimism.

Duolingo Inc. (DUOL)

Description: Duolingo Inc. (DUOL) offers a popular app for language learning through gamified lessons and adaptive technology.
Technical status: Duolingo reversed its strong 21.6% May earnings gain and now trades below its 200DMA, confirming a bearish trend.
Trade commentary: I am not shorting DUOL due to its potential for sudden pops, but these price dynamics tell a cautionary tale that a great earnings pop does not guarantee continued bullish sentiment.

eBay Inc. (EBAY)

Description: eBay Inc. (EBAY) is a global e-commerce marketplace facilitating consumer-to-consumer and business-to-consumer sales.
Technical status: EBAY surged 18.3% post earnings to an all-time high and closed flat on Friday, holding gains despite market weakness.
Trade commentary: This surge surprises me, as I never expected EBAY to be more than a trade. I will not chasing here, but I will monitor for better risk/reward setups.

Etsy Inc. (ETSY)

Description: Etsy Inc. (ETSY) operates an online marketplace focused on handmade and vintage goods.
Technical status: ETSY dropped 6% post earnings but still trades above its 50DMA.
Trade commentary: I am watching ETSY closely for a short-term trade setup, especially near 200DMA support around $52.

Shake Shack (SHAK)

Description: Shake Shack (SHAK) is a fast-casual restaurant chain known for burgers, fries, and shakes.
Technical status: SHAK plunged 14.6% on earnings and fell another 7.1% on Friday, dropping below its 200DMA and turning bearish. However, the stock is over-extended to the downside trading well below its lower Bollinger Band.
Trade commentary: This breakdown warns me that discretionary stocks are vulnerable; SHAK’s fall weighed on the whole sector.

Brinker International (EAT)

Description: Brinker International (EAT) operates casual dining restaurants including Chili’s and Maggiano’s.
Technical status: EAT failed at its 50DMA resistance and pulled back from its rally, still in a longer-term uptrend.
Trade commentary: I exited a small short after a modest gain. If EAT drops below its 200DMA, the yellow warning flag turns red.

Wingstop Inc. (WING)

Description: Wingstop Inc. (WING) franchises and operates restaurants specializing in chicken wings.
Technical status: WING soared 26.9% post earnings but stalled at its June high, forming a top[ing pattern.
Trade commentary: I initiated a speculative short, expecting a test of 50DMA support. If it breaks below $348, deeper selling could follow.

Qualcomm Inc. (QCOM)

Description: Qualcomm Inc. (QCOM) designs and licenses wireless technology and semiconductors.
Technical status: Qualcomm dropped 7.7% post earnings and sliced through both its 50DMA and 200DMA, confirming bearish status.
Trade commentary: I may try fading a relief rally.

ATI Inc. (ATI)

Description: ATI Inc. (ATI) produces advanced specialty materials and components for industrial markets.
Technical status: ATI plunged 18.4% post earnings and broke below its 50DMA, ending a strong run.
Trade commentary: I sold a put near the $75 strike and do not mind getting assigned shares; I still believe in ATI’s long-term industrial thesis.

Itron Inc. (ITRI)

Description: Itron Inc. (ITRI) provides energy and water resource management solutions and smart meters.
Technical status: ITRI dropped 10% post earnings and broke its 50DMA support, continuing lower the next day with another 1.1% loss.
Trade commentary: I sold my shares to preserve remaining gains. It was a tough exit given I was enjoying a very bullish uptrend, but the post earnings damage from all-time highs was too much to ignore.

Intuitive Surgical (ISRG)

Description: Intuitive Surgical (ISRG) develops robotic-assisted surgical systems and technologies.
Technical status: ISRG gapped up post earnings then sold off, continuing its loss and falling further below support levels.
Trade commentary: I exited ISRG to limit losses, another difficult move to manage downside risks. I will reconsider ISRG once it gets back above its 200DMA.

Starbucks Corp. (SBUX)

Description: Starbucks Corp. (SBUX) operates a global chain of coffeehouses and roasteries.
Technical status: Starbucks gapped above its 200DMA post earnings, then reversed hard, falling below the 50DMA and lower Bollinger Band.
Trade commentary: SBUX is bearish. I will not consider buying the stock until it regains both 50DMA and 200DMA supports.

Fluor Corp. (FLR)

Description: Fluor Corp. (FLR) is an engineering and construction firm supporting energy, infrastructure, and government sectors.
Technical status: FLR collapsed 27% on earnings, falling through all support levels and reversing its recovery trend.
Trade commentary: I am holding for now despite losses as FLR is a secondary AI play. The plunge was tough to take as my position went from profitable to unprofitable.

IBM Corp. (IBM)

Description: IBM Corp. (IBM) provides hybrid cloud, AI, and enterprise IT solutions worldwide.
Technical status: IBM reversed a promising stabilization and is back down, testing its 200DMA support around $246.50.
Trade commentary: If IBM closes below 200DMA support, I will likely as part of risk management. IBM is a “cheap AI” play.

Reddit Inc. (RDDT)

Description: Reddit Inc. (RDDT) is a social media platform that facilitates community-driven discussions and delivers targeted advertising.
Technical status: Reddit jumped 17.4% post earnings, clearing its 200DMA and confirming bullish momentum in spite of market weakness.
Trade commentary: I love the pattern but will not chase. I will wait for a better setup.

Airbnb Inc. (ABNB)

Description: Airbnb Inc. (ABNB) operates a global platform for short-term lodging and experiences.
Technical status: ABNB dropped 3.3% and gapped below its 200DMA support into a bearish setup ahead of earnings.
Trade commentary: The stock is a no-touch for now. The tight range and long-term churning offer no compelling setup.

Fair Isaac Corp. (FICO)

Description: Fair Isaac Corp. (FICO) develops analytics and decision management software, best known for credit scores.
Technical status: FICO lost 6% post earnings and another 4%, breaking down to a 52-week low.
Trade commentary: I am relieved I took profits earlier. The market’s faith in FICO’s moat appears to be eroding as the Director of the FHFA goes after Fair Isaac’s business model that acts like a moat.
Caption: The chart had Fair Isaac Corp. (FICO) fall to a 52-week low as sentiment turned sharply negative.

Vertiv Holdings (VRT)

Description: Vertiv Holdings (VRT) provides digital infrastructure and power management solutions, critical for AI data centers.
Technical status: Vertiv posted modest post earnings gains but fell 2.8% on Friday and stopped short of its all-time high.
Trade commentary: I am still holding a small core position and looking to accumulate on a pullback. VRT remains one of my favorite individual stocks for playing AI.

Fiverr International (FVRR)

Description: Fiverr International (FVRR) operates an online marketplace for freelance services, increasingly incorporating AI tools.
Technical status: FVRR dropped 11.9% post earnings but gained a major upgrade afterward, hinting at a potential bullish reversal.
Trade commentary: The upgrade flipped me from cautious to hopeful. I even added more shares. Still, I am surprised FVRR is back to the lows of its multi-year trading range given my earlier bullish commentary.

Kohl Corporation (KSS)

Description:  Kohl Corporation (KSS) is an omnichannel retailer operating over 1,100 department stores across 49 US states and an e-commerce platform, known for offering a curated assortment of moderately priced private-label and national brands for families and their homes. 
Technical status: Krispy Kreme (DNUT), Opendoor (OPEN), Rocket Companies, Inc (RKT), KSS and others all spiked amid meme speculation but quickly reversed.
Trade commentary: I am not chasing meme stocks, BUT if KSS forms a calm after the storm setup and the broader market improves, I might consider a speculative trade off 20DMA or 50DMA support.

Bitmine Immersion Technologies (BMNR)

Description: Bitmine Immersion Technologies (BMNR) is a crypto infrastructure firm pivoting toward Ethereum treasury and stablecoin operations.
Technical status: BMNR has drifted down from a peak of $162 to $31.68, despite aggressive marketing and a recent $1B buyback authorization. BMNR is starting to reverse the rest of its gains from announcing the ETH treasury strategy and the appointment of Tom Lee to the board.
Trade commentary: I am holding out for a test of 50DMA to consider entry. Note that cryptocurrencies are weak again, so BMNR is now vulnerable to significantly more downside from here.

Sonnet BioTherapeutics Holdings, Inc (SONN)

Description: Sonnet BioTherapeutics Holdings (SONN) has pivoted from biotech into Ethereum-related treasury operations.
Technical status: SONN spiked to $19 amid hype, and has now collapsed, just below 50DMA support.
Trade commentary: I am not touching this stock at any price. I am merely using SONN as one of several indicators of speculative fever. I meant to write more extensively about SONN like I did about BMNR to warn about significant downside risks. SONN once traded over $8M in stock price, an indicator of a company that has undergone numerous reverse splits in an effort to maintain its listing. The current massive gains look like a blip on the weekly chart.

Circle Internet Financial (CRCL)

Description: Circle Internet Financial (CRCL) is a digital financial infrastructure firm and issuer of the USDC stablecoin.
Technical status: CRCL is trading at a one-and-a-half-month low and below its 20DMA, nearing bearish territory once its 50DMA emerges.
Trade commentary: I am watching the two open gap levels at $134 and $83 for potential trades.

---

Market Breadth

Be careful out there!

Footnotes

Subscribe for free to get email notifications of future posts!

“Above the 50” (AT50) uses the percentage of stocks trading above their respective 50-day moving averages (DMAs) to measure breadth in the stock market. Breadth defines the distribution of participation in a rally or sell-off. As a result, AT50 identifies extremes in market sentiment that are likely to reverse. Above the 50 is my alternative name for “MMFI” which is a symbol TradingView.com and other chart vendors use for this breadth indicator. Learn more about AT50 on my Market Breadth Resource Page. AT200, or MMTH, measures the percentage of stocks trading above their respective 200DMAs.

Active AT50 (MMFI) periods: Day #53 over 20%, Day #51 over 30%, Day #46 over 40% (overperiod), Day #1 under 50% (underperiod), Day #3 under 60%, Day #7 under 70%

Source for charts unless otherwise noted: TradingView.com

Full disclosure: long IWM shares, long IWM calendar call spread, long AMZN calendar call spread, long APPD, long ALB, long NVO, long UBER, long UPS bullish synthetic spread, long EAT, short ATI put, long FLR, long IBM bullish synthetic spread, long VRT, long FVRR

FOLLOW Dr. Duru’s commentary on financial markets via StockTwits, BlueSky, and even Instagram!

*Charting notes: Stock prices are not adjusted for dividends. Candlestick charts use hollow bodies: open candles indicate a close higher than the open, filled candles indicate an open higher than the close.

* Blog notes: this blog was written based on the heavily edited transcript of the following video that includes a live review of the stock charts featured in this post. I used ChatGPT to process the transcript.