The Most Absurd Market Action Ever?
Irrational and illogical markets are not unusual, but we are now taking it to a new level. Here's why it's different this time.
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Once again, the market started off slowly but accelerated in the afternoon, with big-cap technology names leading and the S&P 500 hitting a new all-time high. It was the tenth strong finish in the last twelve trading sessions, but this time, breadth improved and was positive at the close.
The action was not quite as lopsided on Monday, but there has been such a gulf in performance between a small group of AI and chips stocks and everything else that it eventually had to revert to some degree. Whether it is sustainable is very doubtful.
Although the S&P 500 was sitting at a new high Monday morning, the number of stocks above their 200-day simple moving average was at 47.5%, which was the lowest level this year. Less than 10% of stocks in the S&P 500 have actually outperformed the index over the past year. There are dozens of stats that highlight how narrow this market has been and how many stocks are performing poorly, but it is becoming tiresome to repeat them.
Irrational and illogical market action is not unusual, but we are hitting new levels of it at this point. What makes it worse is the lack of recognition by the business media and many market pundits. They see that the indexes are strong, and that is all that matters.
There have been many times when the broader make action fails to confirm technical strength in the indexes, but what is different this time is that the technical indicators not only fail to confirm the strength but are moving in the other direction.
The longer this sort of action persists, the more likely it is that there will be a very quick and vicious correction when things reverse. It is highly unlikely that the vast majority of the market that is doing poorly now is suddenly going to improve and catch up. There is a greater likelihood that indexes will suffer some sudden weakness.
It is one of the stupidist markets that I have ever traded, and there is little to do but stay patient and wait for conditions to shift.
Have a good evening. I’ll see you Tuesday.
At the time of publication, Rev Shark had no positions in any securities mentioned.
