Bulls Remain Optimistic, But a Drop In the Nasdaq Could Make Stocks Rally
Most stocks aren’t acting as well as the averages. But a break of the Nasdaq could be the thing to get stocks out of their slump.
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Here’s the bull case (from what I can tell).
Interest rates are rising. In fact, they are up quite a bit, from 4.35% to 4.65% since late June, and yet the S&P still sits at 7500.
Oil is up twenty bucks from the first day of July, and yet the S&P still sits at 7500.
The SOX is down fifteen percent from the high, and still the S&P sits at 7500.
I’m sure there is some chatter too about earnings, but since we’re not quite through earnings season yet, they can’t cite that the beat rate is 75%. How do I know the beat rate is 75%? Because it is almost always 75%. That’s how companies manage Wall Street’s expectations.
My response to all of these points would not be to argue against them because they are all true and factual. I would simply point out that stocks in general haven’t been acting great. There was that statistic I cited last week, that something over 50% of the stocks on the Nasdaq 100 were down 20% or more.
We see that in the McClellan Summation Index for Nasdaq. It pretty much peaked in April with that little spurt upwards into late June, but as you can see, it’s been a straight line down since then. This is what the majority of stocks are doing.
The NYSE has seen its Summation Index roll over as well. But a different way to look at what the average stock is doing is to notice that the Volume Indicator (which measures upside volume compared to total volume) peaked in mid-May, and while the S&P has been milling around since then, this metric has gone from 53% to 49%. That might not seem like a lot but the range is generally the mid 40s to the mid 50s so it went from the top of the range to the bottom.
But now we have the chance to push the S&P off that 7500 area. We have the chance to get Nasdaq to break this line it has been holding (on a closing basis) since early June.
I believe if we can do that (break), we can get some hysteria. I believe if we can do that, we already have Nasdaq, using various indicators, short-term oversold, or getting close to it. I believe if we can see a break, we might even get the VIX jumpy. Heck, we got the retail options traders to buy more puts than calls a few days ago on an up day. Imagine what a break would do.
Maybe it will come from some earnings disappointment. Maybe it will come from interest rates. And I do have my eyes on interest rates. They remain in a range (reminder my view for 3 years has been that rates are in a range and sometimes we will push outside the range only to come back in).
The yield on the 10-year is on the verge of breaking over this line. Perhaps that would bring hysteria, not complacency. And we’ve already got the Bond DSI at 19, which means one more push upward in rates would probably get that reading down into the area that says ‘buy bonds’ again.
We just need to get there. And shake the bulls’ thesis. Now that would be helpful!
