Our trusty Abacus tells us that the S&P 500 was up a whopping 1.58 points this past week. If you were asleep for the whole week, you would’ve thought nothing happened. Not true. On Tuesday the Dow was up 168 points…on Wednesday, it sold off 158 points…on Thursday, the Dow had a major tanking of 252 points and just when you thought the market was in trouble a huge 370 point rally on Friday. We can talk about all the nausea coming out of the central banks which are causing these moves but instead we would love to give you the big picture. The big picture is simple. Amazingly, not much has changed.
For starters, rallies continue to remain very selective. This seems to have been going on forever. As we scan a few thousand stocks almost every day, we continue to see about two thirds of the market in poor shape with the other one third in various stages of what we would call good shape. We call this less than meets the eye and we continue to be worried about the outcome of this narrow market. To show you exactly what we are talking about, despite the 370 point gain on Friday, the new highs versus the new lows continue to be horrendous. How about 41 new highs and 188 new lows on the NYSE and 59 new highs and 109 new lows on the NASDAQ?. This is not normal and it’s certainly not bullish regardless of the strength in the bigger indices.
As we stated, only about one third of stocks that we follow are in good shape. This is not the kind the number that leads to long-lasting rallies and frankly this continues to remind us of the nifty-fifty days back in the early 70s. As we have told you, back in the early 70s, a select few stocks continued to do well while l the market and the average stock continued to top out. Back then, it was Kodak, Xerox IBM Polaroid and a few others. Now it is Google, Amazon, Facebook and a few others. Only the characters have changed. Needless to say, back then, once the nifty-fifty topped out, the weak underlying internals made it easy for the market to get hit. Time will tell what’s in store this time around but let us be clear, if things do not change,with the internals of the market so poor, eventually there’s going to be heck to pay.
And then we have our sector scans. Simply put, sectors in poor shape continue to swamp the good shape.
In good shape are regional banks, beverages-both alcoholic and soft drink, home-improvement retail, housing products, tobacco, Internet retail, defense and exchanges. After that, not much else.
On the negative front: Energy, metals and mining, steel, copper, aluminum, coal, truckers, rails, cruise lines, drug stores, fertilizers, agriculture, investment banking and brokerage, solar, paper, media, real estate, construction machinery, farm equipment, shippers, biotech, hospitals, managed care, disk drives, restaurants, hotels, most retail, utilities, junk bonds, russia, china, emerging markets…
We will also be watching very closely the big financials as they remain range bound but near the old highs. A break above will continue the rally into the end of the year. Keep in mind, it is December and we continue to be told the market has to be up during this month.
Lastly, the maniacal central-bank led by Mrs. bubble will be making a move or not in the next week or so. We repeat. It is overblown drivel. Going from 0-1/4% to 1/4% is meaningless. Keep in mind, at the same time that Mrs. bubble may raise rates, Europe is adding to the printed money as well as lowering rates even more into the negative abyss.