Say That You Remember, the Market Was Dancing in September

During early September, bad news was rushing in, but the small caps were leading, many stocks were ripe for picking, the McClellan Summation Index was turning upward, and more stocks were making new highs.

Author:
Helene Meisler
Publish date:
Nov 15, 2019 6:00 AM EST

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You know those people who constantly pine away for the good old days? Oh you know, the way it used to be was always better than it is now. Nostalgia is a funny thing, we have a tendency to soften the past as time moves on, don't we?

Yet, I am here to tell you I find myself pining away for how it was a few months ago. In late August and early September the breadth of the market was outperforming. The McClellan Summation Index was curling under and turning upward. The number of stocks making new highs was expanding daily. Heck, the number of stocks making new lows was in the single digits.

The put/call ratio's 10-day moving average was over 110%. Thursday it stood at 84%, the lowest since June of 2018. The four week moving average of the American Association of Individual Investors bears was at 45%. Now it is at 26%, closing in on the that critical 20% area.

Back then, we had the yield curve inversion. Negative rates were everywhere and coming to our shores any minute now. We had that September Institute of Supply Management reading that screamed recession. And we had the Repurchase Agreement -- REPO -- market blowing up.

If that wasn't enough, we had fear of the upcoming third quarter earnings. Surely, they were going to stink. We had fear that the October deadline for more tariffs with China would stay in place. I would add impeachment, but I have written before and maintain that politics has nothing to do with markets; it's when the financial aspects are involved that we care.

Yet, with all that bad news -- or seemingly bad news -- stocks were acting well. Stocks were rising. They were doing what stocks do: looking past the current and into the future. Stocks were lively then. They rallied, they didn't grind.

Now we have a yield curve that is not inverted. Now we have earnings better than expected (someone please find me a time that overall earnings weren't better than expected; it's rare). What's more, now the song is how earnings have troughed and will get better in the coming quarters. Talk about a change in the narrative.

Now we also have the Fed taking care of the REPO market with "not quantitative easing." Call it what you want, it's back to buying and that has eased those fears.

The October tariffs were lifted and there is now a consensus that even though the December tariffs are still set, they will be lifted as well. The market doesn't even flinch at the thought we won't get a "phase one" trade deal.

Yet now that all the news is good, or better than expected, stocks have stalled out. Breadth has weakened. The number of stocks making new highs is contracting, while new lows are expanding (Nasdaq had triple-digit readings again on Thursday). And sentiment is complacent.

Yet stocks are not lively. They grind and sit and churn at best. Some even go down.

I pine away for better statistics and indicators. I remain convinced that if we could get a few days of downside, we'd shake the complacency right out of the market. And we'd probably get a better set up because surely, if we got some downside, it would be from news that is not currently priced in and therefore would reframe the narrative. And when the narrative is reframed with a negative bias, opportunity presents itself. Call me nostalgic.

Want my take on where we are now? Check out this video with Katherine Ross of TheStreet and me.