Market Analysis

Caution: Weak

$DJIA 27,000, $SPX 3,000, so the headlines and the president celebrate. Don’t let the headlines distract you, look under the hood. This rally is technically weak, it’s as weak as the reason for it: The Fed.

From my CNN Business article this morning:

“Lowering interest rates is rooted in desperation. Watch out, investors. While rate cuts, low interest rates and central bank intervention have been kind to asset prices over the past 10 years, a rate cut this month may eventually be bad news”…..The facts reveal an uncomfortable truth: Cheap money has not resulted in sustained new growth, but it has produced an unprecedented explosion in debt. And the Fed’s solution is now to offer more cheap money by cutting rates again.”

So while Powell once again pleased markets on the surface resulting in new highs headlines, the details beneath lay bare a rally that is weak, weak, weak.

Don’t take my word for it. Here are some sample data charts that make the point better than I ever could.

Nasdaq New High/New Lows:

The entire year has been pitiful on the strength front compared to 2019, but this latest run today is the weakest yet. There’s no notable expansion in strength. And note $NDX is inside another rising wedge yet again.

What about the cumulative advance/decline picture?

Weak, weak, weak. New highs on $NDX, but a lower high on the cumulative advance/decline mix, a negative divergence.

$BPNDX is actually red on today’s new highs and is also showing a negative divergence:

And that’s just the tech sector leading with weakness from within. Never mind the usual suspects.

Banks:

Small caps:

Transports:

But for now the headline indices keep chugging higher inside the Sell Zone. Just remember: Nobody will ring a bell. But these charts above tell a tale, a tale that says: Caution. Weak.


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Categories: Market Analysis

22 replies »

  1. The stock market would still be near all time high valuations even if peak revenue per share in April 2001 grew 4% annualized. IF this happened, the S&P 500 P/S would be about 1.95 which is extremely high. The actual trailing P/S is much higher of course!

  2. we could be close to the top….but we are in such an artificial environment…that I have not the gutts anymore to go short. I have lost way too much money trying to short this charade.

  3. one does have to wonder at what point there will be simply TOO MUCH DEBT in the whole system….or can this charade just go on forever? But if ot can….why do we have to work then? Just give everybody a couple of millions and we all can live in Disneyland, no?

  4. I have wondering that myself, Alexander! I’ve still got a short position open and it builds up growing a loss. However, with enough equity I can run till around 3.800 before it hurts. I also wonder a lot if the buying pressure could turn the “sell zone” into a support zone and therefor becoming a new “buy zone”…

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