This Tandem Ride May Not Be as Smooth Going Forward
Normal, healthy markets 'spread the wealth' like they did Monday, but that doesn't mean you should take your eye of the road. Here's why it's likely to get choppy from here.
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You know what was different about the rally on Monday? In fact, it is the same thing that has been different in the market for the last four trading days. Most stocks are moving in tandem.
Oh sure some are moving up more or down more but we’re (at least for now) not getting the massive bifurcation that was so prevalent in the last few months. I said last week that I think the violence of that unwind is over and I still believe it to be so.
Therefore, mega-cap stocks rallied on Monday. But so did small-caps. The rally, even though it was dull as can be, saw the wealth spread around. That is what normal, healthy markets do.
This doesn’t mean the rally did much more than give us some ebbing and flowing (down three days followed by an up day), which, again, is more normal that what we have lived through in the last few months.
The biggest change that I noticed is the options ratios. The ISE call/put ratio for equities, which for the last two months has regularly been very high was much more normalized at 1.61. There is nothing special about a middle of the road reading like 1.61 except that it is the lowest such reading since late May.
The one thing I will watch closely is that beginning in late May the small-caps drooped and the mega-caps became persistent. I do hope that is not where we are headed once again.
Once again I should point out that even though the Utes were up on the day (but still not over that 960-ish level) bond yields were up. And that uptrend line continues to hold fast. It tried to break last week but now it has lifted a bit. With the FOMC meeting coming our way next week, it is surely something to focus on.
I still believe the market won’t be intermediate-term overbought until the end of the month but I’m not so sure that this rally is going to continue upward until then. It just feels like we’ve gotten more into a choppy situation where we get a few days up and a few days down.
One of the key indicators to focus on as we head into the end of the month is the number of stocks making new highs. Recall last week we had a terrific expansion of stocks at new highs. Then we backed off and now we will see if new highs can expand beyond last week.
Monday’s action chimed in with 100 new highs on the NYSE, which is 25% of the peak reading last week. Perhaps earnings can save us!
