If You Look Beyond the Indexes, You Won't Like What You See

As a trader, the market action that I dislike the most is narrow big-cap strength and very weak breadth. That is exactly what we were hit with on Wednesday. The Magnificent Seven (MAGS) names managed a gain of 0.5%, which helped boost the Nasdaq 100 QQQ to a small increase.

Under the surface, breadth was extremely poor, with just 2,300 stocks advancing while over 7,000 declined. The Russell 2000 IWM lost 1.2% and finished at the lows of the day.

What is most annoying about this action is that the financial news media and market pundits provide superficial reporting and fail to recognize how poor the action really was. They are focused only on the major indexes, which fail to reflect the action in thousands of individual stocks.

A good example of the sort of things that are being hidden by the indexes is biotechnology. The SPDR S&P Biotech ETF XBI has dropped 5.5% since the highs it hit last Thursday, and in the same period, the Nasdaq 100 has a positive return. Nvidia NVDA, by itself, has more than offset all the losses in the entire biotech sector.

I’ve been complaining for a while about the lack of good chart patterns and my hesitancy to put more money to work now looks prudent. The major indexes still have not corrected much due to the Magnificent Seven, but there are now signs that a rollover could start to gain some traction.

Thursday, there are a half-dozen Fed members, including Jerome Powell, who will be making comments. That is followed by the PCE inflation news on Friday morning. There will be plenty of potential excuses for more selling if the market is so inclined.

Many folks never really look beyond the indexes, and they don’t appreciate how poor the action can be when just a handful of mega-cap names are holding up. Big money hides in those stocks, but it makes for a very unhealthy market.

Have a good evening. I’ll see you Thursday.

At the time of publication, Rev Shark had no positions in any securities mentioned.