Under the Weather
That's the market...and me. Bad stomach flu from presumably bad chinese food. Although I have been viewing the stock market bearishly, it's important to note that the S&p 500 is within 3% of it's 2006 peak. The rally off the August low has been sharp and rewarding. Further, if you consider the time the market has taken to sell off, consolidate, then rally to this area, it's not a bad looking move. Tempting.
What I find troubling however is non-conformation and the lack of volume. Non-conformation means that as the S&P has closed in on it's ytd high, the small & mid cap indices have not. In fact, they are much closer to their lows - nearly the opposite of the S&P. Also, the Dow Transports are much closer to their lows. As I pointed out a few weeks back, this age old indicator is suggesting a change in the tides. No one is mentioning it (that I have heard) and that is probably why we should listen to it. Volume is really about supply and demand. In a bull market, rallies occur on rising demand (increasing volume) and pull back on declining volume (timid over-supply). This marke is the exact opposite. Stocks declined on rising volume (aggressive over-supply) and have rallied from the lows on declining volume (timid demand).
Volume sholume you say? You may be right. The real world resumes in two weeks and institutional buyers could come out with their guns blazing and buy everything in sight. But, on Wall Street, Blackberries and mobile computing are ubiquitous. Let's face it, the odds of a big time money manager on vacation and not checking in to see this rally and grabbing stock with both hands if that manager is charged up about the market is next to nothing. So, you may ask, why then aren't they selling into it if it's a false move? Great question and that is precisely why this particular market is so challenging.
The superior performance in the Large cap indices is a flight to quality. The same thing could be driving bonds but that is a more complicated analysis. "Fast and strong doesn't always win the race but it's normally the best bet." (Damon Runyon? not sure...) The odds make it tough to believe in this rally. But I remind myself to be flexible...
What I find troubling however is non-conformation and the lack of volume. Non-conformation means that as the S&P has closed in on it's ytd high, the small & mid cap indices have not. In fact, they are much closer to their lows - nearly the opposite of the S&P. Also, the Dow Transports are much closer to their lows. As I pointed out a few weeks back, this age old indicator is suggesting a change in the tides. No one is mentioning it (that I have heard) and that is probably why we should listen to it. Volume is really about supply and demand. In a bull market, rallies occur on rising demand (increasing volume) and pull back on declining volume (timid over-supply). This marke is the exact opposite. Stocks declined on rising volume (aggressive over-supply) and have rallied from the lows on declining volume (timid demand).
Volume sholume you say? You may be right. The real world resumes in two weeks and institutional buyers could come out with their guns blazing and buy everything in sight. But, on Wall Street, Blackberries and mobile computing are ubiquitous. Let's face it, the odds of a big time money manager on vacation and not checking in to see this rally and grabbing stock with both hands if that manager is charged up about the market is next to nothing. So, you may ask, why then aren't they selling into it if it's a false move? Great question and that is precisely why this particular market is so challenging.
The superior performance in the Large cap indices is a flight to quality. The same thing could be driving bonds but that is a more complicated analysis. "Fast and strong doesn't always win the race but it's normally the best bet." (Damon Runyon? not sure...) The odds make it tough to believe in this rally. But I remind myself to be flexible...
posted by David Geller at 4:23 PM
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