A lot to digest this week as underneath the surface, a lot of jello moving on the plate…and it is not in a good way.
While the major indices are at or near recent highs:
The small caps continue to woefully underperform. This theme has been going on for months.
Bearish action can be found in:
Toppy action can be found in BIOTECH and SEMICONDUCTORS. These two areas have led…so they will be important to watch. There is potentially a classic double top in the SEMIS. This is a pattern that shows up AFTER a big move in where a high is made, a drop takes it down…and a secondary high is hit at or near the first high.
While the major indices at or near recent highs, amazingly, new yearly lows outnumber yearly highs.
Our proprietary survey of stocks in good shape versus bad shape continues to woefully lag major indices.
We would like to add a few other things to ponder.
The bond market looks to have topped as yields are now heading north. This move topped out the REITS badly in the past week and probably the UTILITIES. This should be watched as the Fed has had its way with rates by printing trillions. To her credit, Yellen has been rolling it back…with more to come this week. The question is whether she will blink if we get a decent correction and just start printing again.
Sentiment remains a joke…meaning no bears. As we have stated numerous times, the numbers we follow are at multi-decade lows. One has to go all the way back to 1987 to find them…not kidding.
Do not get us wrong. There is still plenty working. In fact, big FINANCIALS have been starting to move out of range. As short rates stay down and long rates move up, margins expand…thus the reason for this move higher. We shall see if it lasts. On top of FINANCIALS… AIRLINES,CHEMICALS,HEALTHCARE,HOTELS/TRAVEL,INVESTMENT BANKS,RAILROADS,RETAIL and TRUCKING continue to act well.
We just believe the market may have been churning in the past week or so. Churning usually changes a trend. One good down day will start sending the major indices back down to the 50 day average where there will be a big test. That said, one good day could take us out of range for another leg up but with a lot of warts. We suspect it is the former.