Here we go again…from recent reports:
“Regardless of the recent rally, we continue to believe we are in a late stage environment as so many characteristics of a late stage market are showing up. They include:
Duration…all bull moves have a shelf life…even with the printing of trillions.
A huge increase in margin. Remember, margin is your best friend in a bull and frankly, is one of the main characteristics that show up during a bull. But when markets top, margin is the market’s enemy as margin gets sold down first and quickly…exacerbating the selling.
Tons of IPOs with the bar lowered recently as we are seeing a few too many names coming public that have no sales. Yes…we said no sales. The wonderful investment banks are very good at coming up with anything as long as the public continues to bite.
Tons of secondary offerings.
Massive insider selling with a clear lack of insider buying.
Bearish measurements remaining at multi-decade lows. Dare we say some of these measurements have to go all the way back to 1987 to find this lack of bearishness.
There is more. Just realize these are the characteristics that always show up near the end of bull runs and in advance of the tops. The issue is when as often, we are talking months in advance. The last time the market really topped back in 07, it took months of deterioration before the final top occurred. Keep in mind, while the market was deteriorating back in 07, the Dow went into new high ground…masking the trouble.
So far, we are seeing nothing more than rolling corrections as the major indices remain above the important moving averages. The most important point we need to make is that as the major indices have moved into new high ground, fewer and fewer stocks and sectors have accompanied the move. We count only about 60% of the market in good technical shape right now. At lower prices for the major indices, the number had reached into the 80s. This is a negative divergence.”
We recently added:
“Firstly, the DOW is now outperforming as the NASDAQ-types sell off badly. This is not the greatest news as very often, near tops, risk is sold and “parked” into the low beta, mega-cap names in the DOW. This only lasts so long.
Secondly, and more importantly, growth stocks and risk areas that have led the market up are being bludgeoned. In just the past couple of days, the BIOTECHS were sold hard with many breaking the 10 week/50 day average. On top of this, leading growth in TECH and INTERNET also came under severe pressure with many also breaking badly…all on heavy volume.
Thirdly, which goes hand in hand with the first two, tons of distribution days in the NASDAQ at the recent highs.
So careful. Again, markets do not top in a flash. Instead it is a process…and there is good potential this process is continuing to play out. So far, just a big rotation out of “risk” and into what we would call “lesser risk” areas. We will be watching moving averages and support areas very closely in the days and weeks ahead as the ice feels like it is getting thinner. The “risk” indices are teetering while the better indices are churning.”
The best we can describe what we have been recently seeing in growthland is a 50 car pile-up. Call them what you want…risk areas, growth stocks, froth areas…they are melting away. It is absolutely classic that the DOW-types act better as this “always-invested” money has to find a place. It is no accident that Oracle, Microsoft, IBM and HEWLETT PACKARD have had a bid as the “riskier” tech money finds a place to hide. This will only last so long. Many names are already down 30-50%. Names we have highlighted as being priced off the charts…are getting smoked. These are not just breaks but big breaks and should be sold up on any bounces and not bought down. “Assininely” priced IPOs are starting to come in hard.
One look at the NASDAQ/NDX shows a bad break of support and shorter-term moving averages…but we must tell you, this feels like the beginning and not the end of a move out of these areas. We would suggest that all the other major indices are poised to put in tops also. Just remember what we have been telling you about the process we thought was starting a couple of months back…and that is the process takes time. We believe we are now farther along in that process as the 5 year, fed-induced bull looks to be on borrowed time.
The interesting part of the equation has been all the countries that were underperforming the U.S. They have started to outperform…but not sure if this is just a counter-trend move in an overall bear market. We suspect that if the U.S. market worsens, they will come in also.
Lastly, keep in mind that with the DOW and S&P just a bit off the highs, plenty of areas remain in good shape…but Friday’s action probably puts a cap on those areas for now. Can’t wait for earning’s season. Going to be interesting.