Bad Markets Don’t Scare You Out, They Wear You Out
New lows hit 400 again while the mega caps keep the indices afloat.
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It was an unpleasant, gloomy day on Monday. The bond market was closed, so it was slower than usual, but new 12-month lows hit the 400 mark again, and breadth was abysmal at around 42% positive. The Roundhill Magnificent Seven ETF (MAGS) was up a small amount, and the Dow Jones Industrial Average managed a gain, but the Invesco QQQ Trust (QQQ) slipped about 0.7% due to weakness in semiconductors and AI infrastructure names.
Worn Out, Not Scared Out
The action was a good illustration of something I’ve said many times in the past: Bad markets don’t scare you out, they wear you out. The conventional wisdom is that bear markets end in a surge of panic. The reality is that bad markets tend to end with a whimper and a feeling of disgust. And there is no doubt that this is a bad market outside of a few mega caps.
What makes this market even more difficult is that the indices are hiding how hideous the action is in many places. That prevents capitulation. Folks look at the indices and are fooled into thinking the market is healthy. The fact is that the only way a portfolio can outperform the indices right now is if it is made up of a few mega-cap AI names and nothing else.
The good news is that action like this moves us closer to some sort of turning point. As I keep saying, we need the gap between the two tiers of the market to start to close. That didn’t happen on Monday. In fact, with the Magnificent Seven up, it got wider. However, we have some deeply oversold secondary stocks, and the conditions for a bounce are building with every day like this.
Game Plan
The big banks report on Tuesday, and we’ll see how the market reacts. Interest rates inched up on Monday even with the bond market closed, and that didn’t help matters.
My approach is to stay patient and wait for better technical action. I’m not trying to catch the lows. I’m waiting for strength.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePOrre had no positions in any securities mentioned.
