The Market Perspective

Multiple Markets Begin Topping

Thursday August 13 2020

Yesterday we showed that the bullish percent of NDX stocks has been declining while the NDX has made a new high.

Gold and silver also appear to have hit at least an intermediate high.

Yields have advanced and bond prices have fallen the last four days.

The fall the last few days erased all the gains of the past month.

Here is a reversal in  a Blackrock closed end municipal fund

Hard to say how much correction could take place but the weak month of October looms on the investing horizon. That would be a logical seasonal low. So stay tuned, we should be coming on a turn as significant as March 28 bottom but a high this time.

Divergences Abound

Wed August 12 2020

The NDX pushes higher while the percent of NDX stocks above their MAs declines

Black line  is the NDX average.  But the bullish percent is declining ,ie the internal action means the average is being driven higher by fewer and fewer stocks leading the chage. This is how tops are formed and violent reversals begin.

NYSE is weaker than NDX and the high in bullish percent was June  8

Silver has topped

Silver has completed five waves up and reversed. The decline will likely take it back to single digits.

Gold

Same story here, I will update more markets tomorrow. But looks like metals and NASD have fallen first. Bond and stocks will follow.

NASD versus DJIA

Tuesday August 11 2020

 

NASDAQ vs. DJIA: Does the Recent Divergence Matter?

By Elliott Wave International

"The NASDAQ nearly doubled in the last 100 days of its rally."

This quote sounds like it's from 2020, doesn't it?

After all, since its March bottom near 6600, the NASDAQ has rallied to a new record high. Low to high, it has indeed "nearly doubled."

And yet, the quote above is not new. It's from the year 2000.

It appeared in Financial Forecast, a monthly publication by our friends at Elliott Wave International covering stocks, bonds, the dollar, gold, the economy and more.

Yes, the divergence between the NASDAQ and DJIA -- one makes a record high, the other one doesn't -- is something EWI’s analysts have seen before.

And today, the same divergence tells you a lot about the next move in stocks.

This excerpt from EWI’s August 2020 Financial Forecast explains:

Special Section
ANOTHER ICARUS MOMENT FOR THE NASDAQ

In December 1999, just weeks before the Dow Jones Industrial Average made its Primary wave 3 peak on January 14, 2000, the NASDAQ Composite was surging higher to ever more ecstatic reviews. "Ignore any forecast of the Dow," cried the pundits. The Elliott Wave Financial Forecast saw it differently: "When the NASDAQ (and predecessor the OTC Index) pushes into record territory against a lagging Dow, the overall market is late in a long-term uptrend. It is only after years of ascent that investors can work up the courage to jump into these relatively young names despite a weakening trend." In the January 2000 issue, when the Dow was days from its top, EWFF called the "languishing Dow and the ebullient NASDAQ a classic sign of long-term vulnerability for the market." The NASDAQ nearly doubled in the last 100 days of its rally. With the index just days from its peak, the March 2000 issue of EWFF issued the following forecast:

The NASDAQ's strength is derived from rotation among a thinning list of high-tech stocks. "The mentality is, 'Let's trim the generals [the Dow stocks] and put some of that money to work among the soldiers [the Nasdaq issues].'" Investors are so bullish that they will defy their own social nature to back a leaderless army. Such transgressions generally happen only late in long-term uptrends. The resulting carnage resembles what happens in a real war when the generals abandon the fight.

Similarly, after the Dow Industrials topped in December 1968, the OTC index rallied to a new high in November 1969, unconfirmed by the Dow. Overall, neither stock index made any material gains for another 13 years.

The chart above captures the latest divergence between the two indexes, which dates back to February 12 when the DJIA rallied to 29,551.42, its [so far] all-time closing high. The NASDAQ's closing high then occurred at 9817.10 on February 19. After declining in conjunction with the Dow to March 23, the ensuing rally carried the NASDAQ to new highs.

As in 2000, a "thinning list of high-tech stocks" accounts for much of the stock market's strength. The figure below shows that in June, just five technology stocks, Facebook, Alphabet (Google), Microsoft, Apple and Amazon, accounted for 5.7% of the S&P 500's year-over-year increase in total market capitalization, a new record. The prior extreme came at the major top in March 2000.

In July, the advance narrowed further to three main stocks, as approximately 23% of the S&P's gain came from Amazon, Apple and Alphabet (Google).

The next chart shows another area in which the NASDAQ recently surpassed a post-peak extreme from 2000. In early July, NASDAQ volume surged to 1.6 times S&P volume, the highest on record.

The prior record ratio of 1.35 occurred on September 5-6, 2000, when the NASDAQ and S&P 500 completed second-wave rallies in their respective bear markets.

There is an important difference between the peaks in 2000 and 2020. In 2000, financial stocks performed well, holding up for the balance of the year as the major stock averages declined.

The next chart reveals that's not the case now. On a short- and long-term basis, the MSCI World Financials Index is far weaker than the main stock indexes.

In this respect, current market behavior is more like 1968-1969. That is when financial entities struggled in the midst of an ongoing speculative orgy. Brokerage firms were privately held at that time, but in his book The Go-Go Years

In September 1969, two months before the peak in the OTC Index, NYSE member firm Gregory and Sons went under.

In December, only one month after the OTC top, Brooks wrote, "Depression had come to Wall Street. A cheerless pall of doom hung over the financial district through the 1969 holiday season."

A slew of failures in marginal firms followed. Even "conservative, well-established giants were in bad trouble. Bache and Company reported that for fiscal 1969, it had recorded the largest annual operating loss in the annals of American brokerage. Shock waves followed."

Back in 2014, market expert Ned Davis said, "If there are systemic risks, financials generally will ferret them out."

That observation remains as pertinent as ever.

Want to read more insights like this one -- free?

Then join Elliott Wave International’s free Club EWI today.

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This article was syndicated by Elliott Wave International and was originally published under the headline NASDAQ vs. DJIA: Does the Recent Divergence Matter?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

 

Irrational Exuberance

Monday August 10 2020

Boeing and CAT were up 5 % today moving the DJIA up over  300 points. But the NASD closed lower.

Yes stock indexes have had multiple back to back days up, and again this is how such things end.

The huge rise in Kodak isnow being investigated as the stock falls back to earth.

Rather than chase over valued markets we patiently await a bottom in the US Dollar. We are getting close

UUP chart will not post, next update tomorrow morning

 

Uh Oh Munis turning down

Weekend August 9 2020

Outside reversal day in several boackrock muni funds, rates going up prices going down, not good

Euro and Dollar at Trade able Extreme

Weekend August 8 2020

The US Dollar and the Euro appear to be at a trade able extreme to one another. The media has run endless articles on the dollar weakness, which is what happens at a market bottom.

 

We are at the same sort of extreme as last March, but now the Euro is up and the Dollar Down.

I believe it is time to start accumulating UUP.

Soaring Valuations

Weekend August 8 2020

Soaring Valuations, What Could Go Wrong?

Apple’s market valuation is $1.9 trillion-bigger than the GDP of Canada, Russia, or Spain. Apple is now the world’s largest company and dominates the smartphone market. Tesla’s valuation is now larger than all other automakers. Tesla is worth $266 billion, GM a mere $50 B.

Wall Street Journal

Even with July’s gains fewer than half of the 22 million jobs lost in March and April have been restored. Economists warn the rest of the lost ground will be a challenge to regain.

N Y Times

Stock market tops occur with soaring valuations, usually concentrated in fewer and fewer stocks. This is described as declining breadth. Indeed Apple has double from $220 to $440 since the March 28 low.   Similar action occurred in RCA in the 1920s. It would take until the 1950s for RCA to regain its 1929 share price high.

The same could be said EDS in the 1960s. Homebuilder share prices soared into the Fall 2007 stock market high.   The highs in the NASD stock index have not really been confirmed by new highs in other indexes. As with the dot.coms in March, 2000, the NASD shot to new highs by itself.   The NDX has risen from 6,750 in March to 11,139, a 65% rise in six months.

The leaders of such companies at share price highs are universally regarded as some kind of genius. Congress grilled four of them representing Facebook, Amazon, Apple, and Microsoft, just last week. Congressional investigations and lawsuits are another bull market high feature.

We can cite earlier leaders like Ross Perot at EDS or Jack Welch at GE or currently, Elon Musk at Tesla as similar examples.

All the tech firms have displayed the kind of parabolic, investors are pouring in afraid of missing out vertical rallies. All of which is to say that the common denominators of past highs are all present. And of course the market has ignored riots, lootings, defunding the police, and a 34% drop in GDP.

None of this is a precision crystal ball. But it does suggest the possibility of a market high this week. The pullback may tell us more about whether the bull will last into and past the November election.

Last week we predicted higher crude oil prices. At $41.22 it is at least staying above recent support at $40. Exxon Mobil XOM rallied from $30 to $55 and is now under major moving averages at $43.44. The question is whether it will be forced to join other international oils which have cut dividends.

Our last column also warned caution for all the reasons cited above. That still sounds like good advice.

Energy Overbought

Thursday August 6 2020

 

Nustar and AMLP are extended here. Let's see if we can buy on a pullback, the dividends are wonderful

Feels a Lot Like Year 2000

Thursday August 6 2020

The action this year in the market is very much like the action  in early Year  20000. Then the dot.coms fueled a big tech rally.  Now the FANG stocks do the same. The the market peaked in early January,now on Feb 12.  It sold off and the regained 87-89% of the fall by the summer, again then as now. Breadth was more and more narrow then, as now.

 

The market suffered a couple of big drops and rebounds into  2001. And then it finally fell apart.

One can imagine a similar situation now fueled by the uncertainty of the election.  Things could indeed fall apart next year as neither side accepts the election results.

Now here is the NDX  the top  100 for the same time frame.

Over the next two years the NDX would lose 80% of its March  2000 valuation.

Here is the NASD itself. Notice both topped in August Sept and then collapsed.

Will history repeat?

 

/apple Doubles in Six Months

Wed August 5 2020

Apple has powered several major indexes as it doubles in price since the  March 23 low. It is about to split and will have less weight once that happens.  But Apple looks to be topped out in five waves.

America's favorite stock has finally manged to close over its 200 day MA. That would be a fitting end to this counter trend rally.  PMO and OBV are well advanced.

NASD Summation Index

Summation index for NASD rolled over at the June 8 high. Again this suggests the final high is near.

After the March  2000 high, the market rallied back 89% before topping. We are now at 87%. Sentiment is wildly bullish. This is happening as negative mood grips the world. Emerging markets are in trouble again, Argentina has defaulted again. Political polarization is the worst since Watergate.   I doubt either side will accept the results of the election in November.  When I began this blog in  2009 I introduced the idea of a New Civil War. The Red Blue map, the right to work map, and the Civil War map are all the same. Now we have riots, lootings, murders on the rise in Dem controlled cities, both sides will reject the Nov election, sounds like a Civil War to me.

 

I just remembers a social mood moment.   I took a teaching job at Southwest Texas aka Texas State in Fall 1999. That spring I was looking at houses. A realtor showed me one built in the  1970s. He remarked that 'well I guess you just put al your money in Dell stock and stand back.'  I recall thinking here is a realtor in San Marcos TX telling me to put it all in Dell, surely this is the top of the market. Indeed the market topped March  200, rebounded  89% similar to now, and then collapsed 50% in two years. Dell finally went private leaving its investors holding an empty bag. Recently Dell has planned another IPO comeback, a sign of the times .