The Others Finally Rally, but Is the Market Healthy?
What does it mean when the Others rally but the mega-caps falter?
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For two straight months the S&P and Nasdaq have been rising while literally almost the entire rest of the market went down or chopped. Two months! And yes, there was moaning and groaning (didn’t I lead that parade?!), but not hysteria. Divergences happen. They are not healthy, but they happen.
There were so many indexers or market watchers who thought ‘this is fine’. I saw long lists of rationalizations as to why it was just fine that the market did this. Then a day like Thursday rolls around and that rubber band that had been stretched to the point of almost snapping snaps back. The jaws closed. And hysteria ensued.
Folks were scrambling left and right trying to find prior instances where the Russell was up 3% while Nasdaq was down 2%. And if that didn’t work they used 2% and 1% respectively. Let me say now, that if you have to contort your data that much, maybe, just maybe, you aren’t going to learn much from it except that we had a big reversion to the mean or at least a shift toward it.
What I learned was that all those prior instances –or at least the ones that folks managed to manipulate so they might say something—came during extremely volatile times. Think March 2020. Think October 2008. Think the European debt crisis. We don’t have any of those types of volatile moves now—not yet at least. So I’m not sure we can make any comparisons.
What we know is that we’ve had the tale of two markets for months now and Thursday that continued, only the tale of what went up vs what went down traded places.
Since just prior to my vacation in late June I have been looking for the ‘others’ to rally in early July. It has taken seven or eight trading days but it finally happened. And in case you are wondering, while I love that breadth improved (it made a higher high) and new highs improved (still lower than two months ago but improved), this type of either/or market is still not healthy. It looks to me as if longs were sold and shorts were covered.
Yesterday I said I thought we’d be short term overbought on Friday. I still think that (think the others). I don’t think it’s a big overbought condition though. But to go along with my Oscillator, there is the ‘what if’ for the McClellan Summation Index.
This indicator finally lifted but now it needs a net differential of -2500 advancers minus decliners on the NYSE to halt the rise which means it’s a little bit overbought. The intermediate term is still not overbought though.
Earlier in the week I highlighted the chart of the yield on the Five Year. Thursday’s move in bonds took it right down to the line. It would have to crack under 4% to break that line like it means it. But I am going to continue to harp on this chart in the weeks ahead.
Finally the Utes had a great day (and no one even cared which makes it even better!). They are nearing some resistance now in the 950 area. But these two lines (on the Five Year and the Utes) are likely to break—if they break—within days of each other. I still like the Utes.
