By Connor Smith | Thursday, August 7

One Ominous Signal. The Nasdaq Composite bent but didn't break today.

The tech-heavy index rose 0.3% and marked its first record close in just over a week after fumbling an early gain. The S&P 500 and Dow Jones Industrial Average couldn't keep up.

The Dow fell 0.5%, while the S&P 500 was off 0.1%.

Stocks rallied broadly in early trading despite the rollout of President Donald Trump's tariffs targeting trading partners that haven't worked out a pact with the White House. Initial jobless claims for the last week also came in higher than expectations.

At some point traders saw the market's pop as a chance to take profits, so market breadth evaporated. The Dow and S&P 500 never recovered, but the Nasdaq rode a rebound in Magnificent Seven stocks to its fresh high.

The Roundhill Magnificent Seven ETF gained 0.4% after briefly trading down that much.

The S&P 500 once again blew an early lead. Jonathan Krinsky, BTIG’s chief market technician, points out the S&P recently hit a stretch of 17 positive opens in 18 days. But there have been cracks beneath the surface.

The S&P 500's tech sector closed with a relative strength index reading north of 62, while the equal-weight version of the index was below 50. RSI is a momentum indicator that measures an asset's speed and the magnitude of its moves.

That’s happened only six times since 2006, Krinsky writes.

"All six of the prior occurrences saw meaningful negative days for SPX in the days immediately following the signal," he writes. "Only the most recent (May '23) occurrence was that weakness the final low, with the other five events preceding minimum -10% drawdowns, with 2018 seeing -20%, and 2007 of course seeing a more than 50% decline during the GFC bear market."

A pretty ominous signal, as Krinsky titled his note. That doesn't mean we're bound for a drop of more than 10%.

"It does, however, add to our conviction that SPX likely back-tests the Feb. highs around 6100 as we move through August," Krinsky concludes. "Divergences can always resolve in two ways (laggards catching up, or leaders catching down). With the history of this divergence, we would take the latter."

DJIA: -0.51% to 43,968.64
S&P 500: -0.08% to 6,340.00
Nasdaq: +0.35% to 21,242.70

The Hot Stock: Insulet +9.5%
The Biggest Loser:  Fortinet -22.0%

Best Sector: Utilities +1.1%
Worst Sector: Healthcare -1.2%

Crypto's Big Ride

The crypto industry has seen its fortunes shift dramatically since Donald Trump succeeded Joe Biden in the White House, my Barron's colleague Joe Light reports, with key members of the industry now being embraced in the nation's capital.

Dozens of executives from crypto firms, including Coinbase Global, Kraken, and Ripple Labs, on July 30 piled into the Indian Treaty Room in the Eisenhower Executive Office Building, an ornate former library adorned with French and Italian marble panels.

During President Joe Biden’s administration, many—if not most—of the companies represented had either been sued by securities regulators or were under investigation. Now, members of President Donald Trump’s cabinet and leadership team took turns extolling a newly released 160-page White House road map for embedding crypto into Americans’ everyday lives.

“It’s a pretty wild feeling to see so many people celebrating what this administration is doing, when 12 months ago the same individuals were in literal fear of these agencies,” said one crypto executive who attended the White House event. “We’re winning.”

Winning, indeed. Joe writes that crypto has gone from fringe investment to one that's been embraced by some mainstream financial institutions. He notes that banks are being encouraged to dive in, while firms once sued by securities regulators are being courted to "implant themselves into the systems Americans use to pay the mortgage or buy groceries."

The last time crypto suffered a major crash—leading to the failure of crypto exchange FTX in 2022—there was virtually no effect on the economy or wider financial system. The next time, that’s unlikely to be the case.

“All the guardrails are being removed at once,” says Lee Reiners, a fellow at the Duke Financial Economics Center. “There will be another downturn, and when it happens, the pain will be acute.”

You can read more of Joe's deep-dive on the potential impacts of the Trump administration's crypto shift here and on newsstands Saturday.