This Market Is as Frothy as a Beverage Company Gone Quantum Computing
When beverage companies start renaming themselves after hot tech trends, you know the market is speculative.
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It’s been a few weeks (days?!) since I have railed about the speculation in the market. Most if it has been in the crypto space. But the newest hottest group is quantum computing.
You might recall several years ago, when everyone wanted to add ‘blockchain’ into their name, we had a company called Long Island Iced Tea, a beverage company. The stock was getting no traction, so they changed their name to Long Island Blockchain. That was in 2017, near that first peak in crypto. In 2021, the company’s securities registration was revoked.
I thought of this on Tuesday, as Quantum Computing has nearly tripled in three days. When I read the profile of the company it sounds like they have a business that is in the computing area. They have not made any money, though. Then, I learned that the company was formerly known as Innovative Beverage Group. I am not making this up. What are the odds that two former beverage companies managed to convert their businesses successfully to blockchain or quantum computing?
This is the sort of nonsense that takes place when there is too much speculation in the market.
Clearly the last few weeks have not been rife with speculation everywhere we turn as the market has become so narrow that soon my mother will call and ask if I know that the DJIA had its longest losing streak (9 days) since 1978.
But let’s forget the Dow for a minute. It’s not just the Dow. It’s the Industrials, the Transports, The Utes (which broke 1000 this week), the Homies, the Materials, Energy, Healthcare, Metals, and so on. It’s hard to find a group that is up.
I noted the other day that this didn’t just start three weeks ago, it has been going on for two or more months now. Look at the chart of breadth (blue line). It is now back at the early October low but it is also lower than it was in September. It may have turned south in a major way three weeks ago but it hadn’t been tearing the place up before then either.
You can see it even more clearly in the McClellan Summation Index. It just made a lower low. This is the lowest it has been since the lows in 2023. That is what the average stock has been doing: heading down since early October. Again, this did not just start three weeks ago. Three weeks ago is when it became relentless and obvious.
The number of stocks making new lows expanded once again so take a look at the ten day moving average of new lows and you can see it is about to make a higher high, breaking out of the range it has been in since the October 2023 low.
Now the good news is that it will now take a net differential of +3600 advancers minus decliners on the NYSE to halt the decline of the Summation Index. That means it has stepped a toe into short term oversold territory.
As we head into the FOMC Meeting I have no idea how the market will react to the announcement. I do know that by now the talk is of a ‘hawkish cut’ so that’s probably priced in if we get it. I still expect we will get a Santa rally but then I expect a significant correction in the first quarter of 2025, provided my view doesn’t get too crowded.
