Does a Rising Tide Lift All Boats?
Some boats are rising and some are sinking in this market. We'll also look at LLY, GLD, DKNG, and IYR.
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The Market
A bull market is supposed to lift all boats. This last week has seen a lot of boats not being lifted and some are even sinking. In fact if the McClellan Summation Index shows us what the majority of stocks are doing then the majority have been heading down for six weeks now.
Note: this chart is up to date through Wednesday’s trading. If we add in Thursday’s trading it is now under 300.
The Russell 2000 is now down about three percent since Monday morning. Again, let me reiterate that I do not believe this market is similar to what we saw in the last two presidential elections.
In both of those instances, we entered the election with an intermediate-term oversold condition and a short-term oversold condition. In both of those elections, we entered with sentiment quite bearish. That was not the case this time. This time, we were short-term oversold but not intermediate-term oversold.
Mostly what we’ve seen is a giant group rotation. In fact, in many ways, the entire year has been such a situation. Think about this. We entered 2024 with everyone hopped up about small caps so naturally they fell in January.
Then we had a nice correction in March and April, but folks were down on the Mag 7, so what rallied out of that low? Mag 7.
Then we had a whole lot of bearishness on the other 493 heading into July. There was no need for anything else because the index movers were sucking all the life out of everything else. So naturally, the Russell rallied hard for a few days, catching everyone off sides.
As soon as that trade was unwound we caught everyone off sides with the Japanese Yen carry trade and the volatility index. As soon as that was unwound, it was the Mag 7 that rallied hard because by then the QQQs were down over ten percent.
I can go on but I will end with the Chinese stocks. That terrific rally and breakout in late September also caught everyone off sides. It lasted a few days, wrung everyone out and immediately went right back to where it started.
So why should we expect anything different from last week’s surge? Notice the semis, which have been terrible, saw very little selling on Thursday. Let’s see what Friday brings, but as I noted yesterday, folks are starting to wake up to the semis having gone nowhere for months now.
The good news that came out of today’s market is that the NYSE did not see an increase in stocks making new lows. Nasdaq did as Nasdaq’s new lows are now back over 200.
New Ideas
There is a lot of interest in GLD. I am still not a fan but there is support here and the DSI for gold is 25. It should probably bounce but that’s all I expect is a bounce.
Today’s Indicator
The equity put/call ratio’s ten-day moving average never really lifted (you see? Heading into the election we did not have a big bearish sentiment play going on).
Q&A/Reader’s Feedback
We looked at Eli Lilly LLY a week or so ago, and I said it was oversold enough to bounce off this support, but my confidence level was low that it would be more than a bounce. I still feel that way. This 775 area is important, but so is 725. The more it can hold this area and not break, the better. Or a break that snaps back immediately (always my preference—see early August). I am inclined to think it has another rally attempt off support.
DraftKings DKNG has possibly set up a head and shoulders bottom. I would love to see it get down to that line (38-ish but declining) and bounce over the next few weeks/months because that would mean it’s eating through that resistance from the first quarter.
IYR, an etf to be long REITs has been correcting since September. The good news is that this week’s pullback did not break last week’s low. If bonds rally (yes I’m still waiting for that) then this ought to rally back to the upper line.
