Breadth Is Weak but Analyst Opinions Are Held Even Weaker
The S&P's rally can turn bears into bulls but can't make investors buy anything except big-name stocks.
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I watch a lot of tennis during the market day at this time of the year. I’ve got the tennis on the tv, muted of course, and the market on my screens. But I decided to spend Thursday afternoon watching CNBC to see what the various folks on tv thought of the current market.
Here’s what I learned. A strategist who turned bearish in April is now bullish. But should that be a surprise to any of us? No way. Just look at how the Investors Intelligence bulls went from 43 in April to 60% now. They don’t do that unless folks turn bullish.
Then there was near unanimity from almost all the other guests. Most of them were asked the requisite, but what about the breadth of the market? I mean, by now I’m a little surprised my mother hasn’t asked about it since the divergence is now one month old and quite stark.
Breadth topped on May 15th and has been steadily lower ever since. You can see it clearly on the chart of the McClellan Summation Index. So while the first two weeks folks were still using the phrase broadening out, by this week there was more discussion about the poor breadth. I believe you have to have been on a desert island not to know how poor breadth has been.
What surprised me was not that they addressed it but that they rationalized it. A majority said it shouldn’t bother us that breadth is poor because top heavy markets are typical (they are probably the same folks who praised the broadening out!). And you should just own the stocks that are going up. Now why didn’t I think of that? Just own the stocks that are going up. So simple.
Then I saw Bespoke said that the Nasdaq 100 was up .57% on Thursday yet only 29 of the 100 stocks were up on the day. Well, hey, isn’t that easy, just own the 29 and make sure you stay away from the 71. Easy!
Clearly I am joking but that is what rationalizing sounds like. No one is terribly concerned. They are okay just owning the stocks that are going up. They must be the most awesome stock pickers. Or they are not telling us that they too have a lot of stocks not participating.
Yet let me point out that while the Russell gapped up on Wednesday and closed at the low of the day. Thursday it filled that gap, leaving it up a few points on the week. It has gone nowhere. And it hasn’t broken that uptrend line. No wonder folks are complacent.
The Transports, for all their chugging along at the lows, also haven’t broken. A few weeks ago I said if you want folks to turn bearish we have to see something break. Uptrend lines, flat lines, some obvious level. But that hasn’t happened yet. All that’s happened is a big churn. That’s probably why folks are complacent about the poor breadth rather than bearish.
