It’s Not When the Fat Lady Sings… It’s When All the Money Is In

DJIA: 46,773

It’s not when the fat lady sings… it’s when all the money is in. If you are sitting there wishing you had more money to invest but you don’t, when true for all of us that’s the top. By definition, when there’s no one left to buy, prices are through going up. The irony, of course, this is just when things never looked better – why else would you wish for more money to invest? The news is good, you’re making money, all seems right with the world, and bam, the market takes a hit. Actually, this is the way it may seem in retrospect, in reality tops are more subtle, with stocks and groups peaking a few at a time. And typically, it’s the big cap Averages that give it up last. That’s why you want to watch the average stock, stocks advancing versus those declining. When they begin to fail to participate, it means liquidity isn’t what it used to be. It takes time, but eventually there isn’t enough liquidity to drive even the Averages.

We have seen both good and bad days recently. Noteworthy on the bad side was last Friday’s gains in the averages with slightly negative Advance/Decline numbers, a perfect example of what we call a bad up day. In turn, Monday saw a Dow gain of 500 points, always nice but less important than the 4–to–1 up day. Days like that are reassuring, but have become less frequent. We do harbor some concern about the market since that reversal on October 10, and last week’s roach infestation. The former saw a reversal from a new high, not a good thing, and a spike in the VIX, also not a good thing. The combination typically results in further weakness, but somewhat insidiously not immediately. Last week’s problems did some damage to Financial stocks, particularly the Regional Banks. Again, also not a good thing.

Part of the uptrend’s staying power has been its ability to change partners and dance, that is, rotation. Lately and quite impressively has been the strength in Biotech. This is an area down so long almost anything looks like up, but there are some serious changes here. As is always the case, down and almost forgotten typically means sold out, and that’s the key to any important turn.  Then, too, for those of us who have been around the Biotech block, this is a group not without its risks. If we were to tell you the win rate on many of these stocks could be 80%, you might be impressed. Let us remind you, it’s the same for Russian Roulette.   Probabilities are important, so too is risk — failed trials, bad outcomes, Biotech has all of them. In that sense, ETFs like SPDR Biotech ETF (XBI -108) and iShares Biotech ETF (IBB – 155) make sense. Individual good charts include Beam Therapeutics (BEAM – 28), Jazz Pharma (JAZZ – 138), Natera (NTRA – 195), and about 50 or 60 others.

Gold has been as good as its name, up some 50% this year. The specific cause of the recent setback is unclear. The rumor is a downgrade by the well-known analyst Isaac Newton, based on an indicator he calls gravity. A mildly less esoteric cause of the selling comes from sentimentrader.com. Over the last three months, Gold has reached a new high more than 20 times, a pattern which typically means a correction is due. Mind you, a correction and not an end to the overall uptrend. Indeed, odds favor still higher prices before year end. As is typical of most markets, this comes as the outlook for Gold is seemingly positive. The Chinese are buying, central banks are buying, tariffs, etc. Even museum robbers prefer Gold to fine art.

While everyone is waiting for the much anticipated and hoped for revival of secondary stocks, we may be seeing just the opposite. Complaints of a narrow market abound, four or five stocks being half of the S&P or whatever. Suppose we ain’t seen nothing yet. Apple (AAPL – 260) has just broken out, Google (GOOG – 254) and Microsoft (MSFT – 521) are close. Having gone nowhere for a month, even the MAG7 ETF (MAGS – 65) seems about to break out despite Nvidia’s (NVDA – 182) recent stall. We haven’t really run the numbers, but also intriguing is these names seem to hold up better than most in weakness. And let us not forget that car/taxi/robot/battery company which shall not be defined. Meanwhile, speaking of career risk, the charts haven’t exactly been nailing it recently. Netflix (NFLX – 1114) wasn’t a bad chart, IBM (285) was a good one. The latter’s 20 point down opening at least did find support at the 50-day, and the rebound makes it more interesting.

Frank D. Gretz

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