The hope was if we could get past September and October earnings that we could have a good end of year rally. We have already had a decent rally and a bigger rally could still happen but:
While the DOW goes into new highs, nothing else is.
While the DOW goes into new highs, advance/declines have made relative lows.
While the DOW goes into new highs, the RUSSELL 2000 and the MID-CAPS have broke initial support and are woefully under-performing.
While the DOW goes into new highs, new yearly lows have expanded markedly while new yearly highs have contracted. (Many muni-bond funds are on this list. While they are non-operating companies, it tells you the state of interest rates!)
While the DOW goes into new highs, a slew of leading growth names have topped with a decent amount of names breaking down.
While the DOW goes into new highs, OIL PRICES continue to soar.
While the DOW goes into new highs, LONG BOND YIELDS have broken out to new yearly highs.
While the DOW goes into new highs, FINANCIALS continue to meaningfully under-perform.
While the DOW goes into new highs, FOREIGN MARKETS continue to meaningfully under-perform.
While the DOW goes into new highs and nothing else does, tons of froth and speculation pervades the market as “no sales” marijuana stocks get market caps in the tens of billions and 80% of this year’s IPOs lose money.
A couple of other notes:
For every 10 cent move in gas prices to the upside over a year’s time, estimates are that it takes $10.6 billion out of the pockets of consumers. That’s a lot of cake. Considering prices are up 50–60% in the past year, this must be watched. This does not include the costs to truckers, airlines, cruise lines and any gas-centric business…in fact, all of business…as the cost to move everything goes up and the cost to make a lot of things go up.
As rates continue to move up, affordability goes the other way for home buyers. Is it any wonder that one of the worst acting groups in the market is housing as well as many housing-related names? On top of that, costs on all loans go up…and let us not forget the gargantuan, monolithic, over-the-top, blame both parties debt and deficits…which will certainly continue to explode.
We know! The DOW just hit new highs…but for us, it always is the weight of all the evidence that gives us a leg up. We do not just look at the DOW. We scan almost 2000 names, 200 sectors, all the commodities and all foreign markets. The weight of all this evidence says underneath the surface, not so great. Markets, as well as the economy, may not be used to these higher rates or higher energy prices. Keep in mind, we will not turn overall bearish until the DOW, S&P, NASDAQ and NDX break support…and right now, not there yet.
2 replies
  1. Avatar
    Zoe says:

    First of all, I read this page every day. This was possibly one of my favorite posts. I assume this simply means to have a balanced portfolio (60/40 stocks/bonds) or whatever. It could also mean to have commodities and/or gold as part of your portfolio. It could also mean that whatever we do, we’re screwed because something is wrong under the hood. The concern is that every time I “get out” of the market, that is where it shoots up for another bull run.

  2. Avatar
    Neil says:

    Your caution is well merited. Another ‘canary in the coalmine’ is the behavior of real estate prices in a number of major international cities; such as San Francisco, Sydney, London, Dublin, Hamburg….. Prices are down measurably over the past year and continuing to soften.

    What drives the DOW? How much of this upward move can be contributed to companies accumulating treasury stock to manipulate their stock price? Time will reveal answers to these questions but does encourage one to use caution.

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