July 31, 2026

A volatile week left the major averages modestly higher as investors navigated swings in oil prices, the Federal Reserve's decision to leave rates unchanged, and renewed buying in the AI-chip trade. The week opened with a jump in equities after a pause in the hostilities between the US and Iran sent crude oil prices down -8.21%. However, the advance lost momentum by the afternoon as investors continued to rotate out of big-cap tech and semiconductors and into cyclical areas of the market as the Philadelphia Semiconductor Index (SOX) fell into a Bear market. The NASDAQ diverged from the DJIA on Tuesday as the blue-chip index gained 537.24 points (+1.03%) while the NASDAQ recovered from an early 350-point selloff to finish down only 55.17 points. The Equal-Weight S&P 500 (RSP) hit a new all-time high on the same day, with seven of 11 sectors trading higher, confirming the market rotation. A reescalation in fighting between the US and Iran midweek sent oil prices sharply higher and equities lower at Wednesday's open. The different indexes took another leg down late in the session after the Federal Reserve left rates unchanged, but traders weren't happy with the decision and Fed Chair Warsh's press conference. Yields were little changed after the announcement, with rates on the long end inching higher while the two-year T-Bill eased lower. Concerns that the Fed could be behind the eight-ball in fighting inflation sent the DJIA down 1,153.18 points (-2.19%), while the NASDAQ dropped 1.74% and the NASDAQ 100 slid into correction territory. While Q2 earnings from Coca-Cola (KO), Ford (F), Boeing (BA) and others beat estimates during the period, blowout numbers from Microsoft (MSFT) and Lam Research (LRCX) on Thursday reignited the AI-chip rally, and equities surged at the open, erasing much of the previous day's drubbing. The SOX spiked +8.19%, and the overweighted big-cap NASDAQ soared +3.36%. The gains would have been more except for a -7.95% drop in shares of Meta Platforms (META) on disappointing numbers. It was a narrow rally, however, as only five sectors traded higher while the RSP closed down. Amazon (AMZN) led a bounce on Friday after crushing earnings outweighed Apple's (AAPL) -9% tumble after missing numbers. Despite the wild swings in equities, crude oil closed the period at $84.77 a barrel, about where it settled the prior Friday, while yields ended with the two-year Treasury little changed at 4.27% and the 10-year T-Bill increasing to 4.71%. The yield on the 30-year Treasury was also higher at 5.26%, leaving the 30-year mortgage rate at 6.75%, the highest rate of the year. Housing stocks struggled on the increase, with the US Home Construction ETF (ITB) falling -6.5% from its Tuesday high. The major averages were higher again on Friday as stocks bid adieu to July, and the DJIA was able to snap a three-week losing streak, while the S&P 500 and NASDAQ closed out their own two-week losing streaks as the week and month ended. Next, investors will get a look at how the war with Iran has affected manufacturing and the July jobs numbers.

For the period, the DJIA gained 537.78 points (+1.0%) and settled at 52,485.03. The S&P 500 added 77.74 points (+1.0%) and closed at 7,489.72. The NASDAQ jumped 398.03 points (+1.6%), finishing at 25,373.85. The small-cap Russell 2000 picked up 1.34 points (+0.0%) and settled at 2,931.34.

Market Outlook: The technical condition of the market is a mixed bag. After several weeks of losses, Wednesday's drop left the technical indicators for the major averages in negative territory. However, the subsequent two-day rebound lifted Momentum, as measured by the 14-day RSI, back to a neutral position. MACD, a short-term trend gauge, remains in bearish territory but was close to a bullish cross as the week ended. The different indexes also bounced around key Moving Average (MA) support/resistance levels with mixed results. On the plus side, the DJIA was able to bounce off support at its 50-day MA, while the Equal-Weight S&P 500 (RSP) found support at its 30-day MA and was able to post a new record high on Tuesday. The S&P 500 traded below its 50-day MA for most of the week but managed to close above this closely watched level on Friday. The rotation out of technology stocks over the last few weeks sent the NASDAQ and NASDAQ 100 below key support at their respective 100-day MAs midweek, with the NASDAQ 100 briefly sliding into correction territory. Both indexes were back above that level as the week closed, but remained below their declining 50-day MAs, a negative for the market going forward. As mentioned earlier, the divergence between the DJIA and the NASDAQ continues to deliver mixed signals. Finally, while August is seasonally a weak period for the market, the Market Edge Cyclical Trend Index (CTI) shows that four of the five cycles followed in the market timing model are ready to reset to a positive configuration, which would project a Bullish market posture going into October. Although the DJIA came within nine points of a prior low, Wednesday's selloff saw several indexes make lower lows, which will extend the Bearish market posture at least another week, following the Rule of Commonality in cycle analysis. If the Dow Jones remains above 51,542 in the coming week, the CTI will reset to a Bullish position the week ending 8/07/26.

The secondary indexes, which include the DJ Transportation Index, the small-cap Russell 2000 and Philadelphia Semiconductor Index (SOX), closed the period mostly lower, which is a negative for the broader market. Market technicians prefer to see these indexes lead the market higher and lower. The SOX dipped below its 100-day MA before closing above it but remained below its 50-day MA. The Russell 2000, which was outperforming the broader market going into July, briefly lost support at its 50-day MA before closing above it, while the DJ Transportation Index held support at its 100-day MA. If this week represents their lows, it would help confirm that the CTI is ready for a reset.

The market sectors finished the period mixed, with Financial (XLF), Healthcare (XLV) and REITs (XLRE) making new highs. Consumer Discretionary (XLY) outperformed, jumping +6.11% on strength in Amazon (AMZN), while Communication Services (XLC), Financial (XLF) and Consumer Staples (XLP) were also strong. Utilities (XLU), REITs (XLRE), Materials (XLB) and Industrial (XLI) were the weakest sectors. Pointing to a broadening out of the market, six sectors trade above their 50-, 100- and 200-day MAs, and only three are below their 50-day MA but are showing improving momentum, another plus going forward.

A chart of these indicators can be found by going to the Market Edge Home page and clicking on Market Recap, which is on the right-hand side of the page just below the Second Opinion Status numbers.

Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times.

Currently, the CTI is Negative at -15, unchanged from the previous week. Cycles A, B, C, D and E are bearish. The negative CTI could reset to a positive configuration as early as next week if the DJIA doesn't trade below this week's intraday low of 51,551.

Momentum Index (MI): The market's momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since they indicate that a majority of the broader-based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish.

The Momentum Index is Negative at -8, unchanged from the previous week. Breadth was positive at the NYSE, as the Advance/Decline line added 605 units while the number of new 52-week highs exceeded the number of new lows on four of the five sessions. Breadth was negative at the NASDAQ, as the A/D line lost 70 units while the number of new lows outdid the new highs on all five days. Finally, the percentage of stocks above their 50-day moving average jumped to 49.1% vs. 45.2% the previous week, while those above their 200-day moving average rose to 57.2% vs. 55.8% prior. Readings above 70.0% denote an overbought condition, while below 20% is bullish.

Underlying market breadth is also mixed. The NYSE Advance/Decline Line, a leading indicator of market direction, hit a record high two weeks ago but was flat again this week. The number of new 52-week lows on the NASDAQ, which outnumbered the new highs, continues to expand. There was little change in the new highs and lows on the NYSE, but the new highs outdid the lows.

Sentiment Index (SI): Measuring the market's Bullish or Bearish sentiment is important when attempting to determine the market's future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. The Sentiment Index is Negative at -2, down a notch from the previous week.

Investors have backed off their bullish stance over the last few weeks, but bears remain hard to find in the professional ranks. The National Association of Active Investment Managers (NAAIM) Exposure Index fell to its lowest percentage in six weeks at 79.7% but remains in a Neutral position. The Percentage of Bearish Investment Advisors increased to 17.0%, after two weeks at 16.7%, but that's the lowest since February. After falling to 29.6% the prior week, which was the fewest retail bulls since September 2025, The American Association of Individual Investors (AAII) survey saw a small uptick to 31.0% but remains below the historical average of 37.5% for the fourth time in the last five weeks.

Market Posture: Based on the status of the Market Edge market timing models, the 'Market Posture' is Bearish as of the week ending 05/15/2026 (DJIA - 50,579.70). For a closer look at the technical indicators and studies that make up the market timing models, check out the tables located below.

Industry Segment Rankings: What's Hot (123) - What's Not (49): The following are the strongest and weakest Industry Segments for the period ending 7/30/26. Strongest: Movie Theaters, Generic Pharmaceuticals, Full-Service Restaurants and Dairy Products. Weakest: Confectioners, Special Purpose Acquisition Companies, Tobacco Products and Gold. To review all the Industry Group rankings in the Market Edge universe, click on the Industry Group tab.

ETF Center: The top-performing ETF categories for the week ending 7/30/26 were: Sector-Internet (+4.23%), Sector-Consumer Discretionary (+3.84%), Specialty Retail (+3.60%), Europe (+3.04%) and Specialty Financial (+2.81%). The weakest categories were: Commodity-Energy (-6.97%), Specialty Technology (-6.35%), Sector-Alternative Energy (-3.77%), Sector-Energy (-2.95%) and Commodity-Blend (-2.83%). To review all the ETF categories in the Market Edge universe, click on the ETF Center tab.

By David L. Blake, CMT