WEEKEND NOTES

Last week, we wrote this:

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.
SO THE RECENT DROP DID NOT COME OUT OF THE BLUE. The internals of this market have been deteriorating. As soon as the growth started to gag, most followed the lead. The NASDAQ and NASDAQ 100 broke the 50 day, The RUSSELL has been so weak, it got all the way down to the 200 day before bouncing.

The market is oversold on a near-term basis but oversold can get more oversold. (We are hearing China eased again over the weekend !). Leave no doubt that the ice got even thinner last week. Many are calling this a blip. After all, the DOW and S&P are only down a few percent off their highs…but they are not telling you that underneath the surface of the DOW and S&P, the action is much worse.

We just go slower here. We also get excited. Why? It is in the corrections that the cream rises to the top. It is in the corrections that it is easiest to isolate the strength. If this is nothing more than a correction of unknown price and time, ultimately, the relative strength will show up. Just know as we head into earnings season, markets look like it needs some more price and time.

The only areas emerging are ENERGY areas as prices have moved out to new highs. After that, not much new. On the other end, we continue to watch the SEMIS closely. The SOX remains very wide and loose while trading below the 200 day. There is a decent chance the past few months are tracing out a gigantic top. If that is the case, look out.