Stock indexes need to consolidate August gains after a strong July

The above shows the US30, SPX500 and NAS100 monthly charts. July charted long blue candles for each index, with the US30 and SPX500 closing between the blue bands in their respective neutral areas. Whilst the NAS100 lagged, it has pushed upwards into neutral during the first twelve days of August.

The indexes need to consolidate these positions. This stabilisation will provide a platform to potentially move back into bullish zones between the upper blue and red bands. If this happens and the stochastics push above 80 and hold (blue arrows), an underlying bullish momentum will be present.

However, if they end August back in their bearish areas, between the lower blue and red bands, July into August will be regarded as a bear market rally. To this end, we are keeping an eye on the real interest rate:

Source: www.tradingview.com

Real interest rates declined in July (blue arrow). This drop coincides with the stock index's positive July run. Intuitively this makes sense as the lower rates support a higher discount factor. However, the real rate's position is between the upper blue and red bands in its bullish zone. If this maintains, it may mean higher rates ahead, which will be a headwind for the stock indexes.