Every major index trades below short, intermediate and long-term support with some trading way below long-term support.
So far, despite very stretched and extended conditions to the downside, rallies have been anemic and short-lived.
Perceived good news has been sold off. Netflix gapped to the upside $30 on strong subscriber growth and is down a measly $80 from that day. That is just one example. There are many more.
The SOX is at new yearly lows potentially showing a major, gigantic top in placee.
Just tons of earnings blow-ups in many industries. Just on Friday, you get AMAZON (internet retail), MOHAWK INDUSTRIES (carpet), SVB FINANCIAL (regional bank), EQUINIX (data centers and other stuff), GOOGLE (search, ads), PROOFPOINT (software security), MOODYS (ratings service), WESTERN DIGITAL (disk drives)…and many more…just on Friday.
We can list dozens and dozens of names from the past couple weeks. Very simply, these kind of blow-ups do not happen in bullish markets.
1050 NEW YEARLY LOWS…15 NEW YEARLY HIGHS
WORLD MARKETS even more bearish…just about all below long-term support.
We repeat, this downdraft did not just start in early October. Almost half the market, as well as many markets around the globe were already bearish. Through the years, we have always emphasized it is these narrow leadership markets that are easier to sell off when markets decide to sell off.
We repeat, margin remains near all time highs. Margin is a bull market’s best friend. It is a bear market’s biggest enemy.
We repeat, be careful about listening to “the economy is strong, earnings are strong” reasons for why the market has to come back soon. We are all for that but news flash, the market does not have to come back soon if it doesn’t want to…and for the hundredth time, markets look forwards, not backwards. Every time we have said that, we have been shrugged off. The nine recessions since 1956 began a median of eight months after a primary S&P top. Repeat: The nine recessions since 1956 began a median of eight months after a primary S&P top.
Have we seen anything that represents light at the end of the tunnel? As far as market action, not a one. But there are other things we keep in our file manager.
We watch sentiment. Price moves emotions. Price moves fear and greed. It should be obvious that unabated greed is turning into fear. Pessimism has most definitely picked up but haven’t seen the extremes that usually stanch the bleeding but no doubt heading that way.
We watch the calendar. November and December are very often decent months. BUT…and it is a big but…we pay attention to price first, everything else second. Price still sucks…and the NY Giants offense still sucks.
Shorter-term is anyone’s guess. Eventually the daily bottom callers will get a strong bounce. The fact is a strong bounce can happen at any time. It can happen tomorrow. It just cannot be predicted. Big bounces can come out of thin air. Remember, big bounces in bearish phases are to be sold into.
Our most important words of advice during bearish phases is that we would rather be a little late than too early. How do we know? Did you buy anything in the past week?
The trees….short term moves…a 1 out of 10 on the importance scale. The forest…bigger picture…a 10 out of 10 on the importance scale. Too many want to call the bottom. Too many playing in the trees. When you have a chance, go check out the charts of the DOW, S&P, NASDAQ, NDX, SOX, XLF, KRE, XLI, XME, XLB and everything else under the sun. For lack of better words…an October meltdown. JUST REMEMBER…this did not start with the popular indices coming down. We wrote to you each week that the BIG 4 ACT FINE but half the market as well as foreign markets are sickly. Narrow and weak internals are easier to sell off if they decide to sell it off…thus you see what you are seeing.
Futures pop back up this morning…THE TREES. Stay in tune with THE FOREST. Everything except the most DEFENSIVE of all areas like UTILTIES and CONSUMER STAPLES now trade below longer term moving averages. The Dow ETF closed below its 200-day moving average today for the first time since March 2016, ending its longest run in its history…and the DOW usually holds up best when markets are hit. We have no clue to today and the short term. Just remember…THE FOREST!
“The sea was angry that day, my friends – like an old man trying to send back soup in a deli.”