The SOX Could Signal Next Move for Stocks
While breadth continues to deteriorate, it's the SOX that are keeping this market afloat.
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For the first time in nearly two months the S&P closed red on a Friday. I know, it was overdue, and it was barely red. What is even more curious is that the small caps peaked nearly a month ago so the fact that the big caps have been able to sustain this divergence for a month is something to behold.
In fact as we go through the various group charts of the market we see that the Industrials haven’t made a higher high. We see that the Banks haven’t made a higher high. We already know the Transports can barely lift themselves off the mat. Software peaked in February. Energy peaked two months ago.
Even the staples peaked in mid May. The Homebuilders peaked in April as did consumer discretionary. Drugs have gone nowhere all year. Biotechs are down in the dumps. Most commodities peaked nearly a month ago too. And don’t forget the Utes and all the contortions folks have gone through to tell us ‘this time is different’ still haven’t made a higher high.
So what does that leave? Oh yes, the semis. The SOX is above the March high—barely. And even last week’s hoopla only brought it back to the late May levels. But for now the SOX remains the champ. I will look for signs of faltering here in the next few weeks because if software really does lead the SOX should correct in the second half of June/early July.
In the meantime as noted above the majority of stocks peaked within the last month. That’s why the McClellan Summation Index is heading down. It’s also why the ten day moving average of stocks making new highs is heading down.
Sometimes it is easier to see new highs when I have smoothed them out on a ten day moving average. Notice the May rally was a lower high, for both Nasdaq and the NYSE. The prior runs to new highs in the S&P and Nasdaq saw these indicators at the top of the page, not already heading down.
Another curiosity is that the Overbought/Oversold Oscillator got oversold a couple of weeks ago and typically this gives the market a very nice boost, especially the small caps. You might recall I cautioned this looked like more of a bounce than a rally was in the cards. It was the math behind it. While not yet overbought, you can see the NYSE has inched its way over the zero line while the Russell (not shown on the chart) has inched its way lower.
I believe complacency is high. I believe the market could use a good whack—heck small caps are already down four percent—but unless/until there is any selling in those index movers, this is the market we have. Maybe the Fed can shake things up this week.
