Strange Days Have Found us… or is it Just August?

DJIA: 44,786

Strange days have found us… or is it just August? August is full of strange days, rife with its crosscurrents, though purported to be calm. It often surprises with change, the latter certainly being the case on Tuesday, one of the strangest days we can recall. The NASDAQ was weak from the start, the Dow eventually followed, the strange part – NYSE advance/decline numbers were positive all day. As for the NASDAQ, the sacred were not– Nvidia (NVDA – 175) and Palantir (PLTR – 156) almost more than the rest. Gold proved no hedge for Bitcoin, on the contrary.  So, just the vagaries of August, or something more sinister? The data suggests a tremor and hardly the big one. Still, the divergence as simple as stocks above their 200-day against new highs in the averages, has a history of causing problems.

Attention to detail can miss the big picture. For the market, however, if detail is the average stock, it offers the best guide to the overall backdrop. Hence our concern about the divergences between stocks relative to their various trend following moving averages. The idea of the NASDAQ at a new high while stocks above the 50-day average is around 50% is surprising – versus a norm around the mid–70s. That cries narrow participation, and participation is the key to a healthy market. And yet there were 570 NASDAQ new highs last week, a lot! Our typical go – to measure of participation of course are the A/D numbers which have seemed adequate. Then came last week’s back-to-back four-to-one up days, days with 75% of NYSE stocks advancing. Those numbers are not unusual coming out of a washout low, but very unusual and bullish around new highs in the averages.

The late Joe Granville created “on balance volume,” basically the concept that volume precedes price. In his day he was as famous as any, and stranger than most – you know how those technical analysts can be. We recall that he once said at market turns there’s always a hook, something that catches you looking the wrong way. So, were those back-to-back A/D days the hook, or is the seemingly lagging participation the hook? Time will tell, to coin a phrase. Leadership looks a little over cooked but that doesn’t mean over. And leadership like Nvidia and Palantir doesn’t die quickly. Look at a long-term picture of Cisco (CSCO – 67) back in 1999-2000. If this is a bubble, that’s almost good news, there’s still plenty of money to be made in the bubble stocks. Certainly, AI will change the world. Then too, will it do so more than RCA.

Pity poor Berkshire. The likable Mr. Buffett is retiring, leaving everyone to wonder. And then there is the record cash amidst the ongoing bull market. For one of the few times in more than 40 years, the ratio of the stock’s performance relative to the S&P is down more than 20% since April, according to Sentimentrader.com. What has gone wrong? He has been selling some Apple (AAPL – 225) which until the last couple of weeks had not helped. More importantly, he neglected to buy Nvidia and Palantir. As it happens, this is a bit of a repeat of 1999–2000 when he was abandoned by investors for the siren call of the Dotcoms. While the comparison between then and now is intriguing, fret not. Back then the S&P continued higher for months.

They say you never know a bubble when you’re in one. And if you think you know invariably you’re early, and being early is the same as being wrong. Then, too, being late means giving up a lot of gains.  Maybe the best explanation of a bubble is when stocks are bought simply and only because tomorrow’s price is expected to be higher than today’s. Or is that just trend following? As we suggested above, even if this is 1999 that’s not a bad thing. There was a lot of money made before the March 2000 peak – you just need to be in today’s Dotcoms. They’re having their problems this week, but the first leg down is not the end.

Frank D. Gretz

Click to Download