An 'Odd' and 'Peculiar' Market Ahead of the Fed
While the most expensive names are benefiting, some of the better values are struggling.
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For the tenth day in a row, S&P 500 breadth was negative, the DJIA and Russell 2000 were weak, and the Nasdaq 100 QQQ hit a new all-time high. Overall breadth was more than 2 to 1 negative, but the Magnificent Seven closed flat despite poor action in Nvidia NVDA and Bitcoin tested its all-time highs.
It is a very odd mix of frothy action in a few places and some very dismal action in other places. Both Bitcoin and the Magnificent Seven appear to be benefiting from safe-haven status while the rest of the market is wrestling with inflation concerns, higher interest rates, and a sharp downtrend in bonds TLT.
What is particularly peculiar about the action is that the most expensive names are benefiting while some of the better values are struggling. Buyers prefer relative strength even if they are paying 10x revenues for it.
What makes the action more difficult to navigate is that the business media doesn’t appear to acknowledge how severe the disparity in action has been. We have a euphoric bull market in a narrow group of big-caps that drive the indexes and corrective action in the great bulk of individual stocks.
This extreme action is going to make the Fed interest rate decision next week extremely important. There is talk that this is a "hawkish cut" because it is likely to come with a signal that the Fed is in no rush to cut again in the near future since inflation is so sticky.
The good news is that the deeper the correction goes for many individual stocks, the greater the likelihood of a bounce-back rally that coincides with the traditional Santa Claus rally.
Have a good evening. I’ll see you on Monday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
