You Can Summon the Witches of the Deep, in This Case Bonds… but Will They Respond?

DJIA: 45,947

You can summon the witches of the deep, in this case bonds… but will they respond? So far not so much despite the Fed giving the market pretty much what it wanted. The Homebuilders which we had thought were the canary here, also have not acted so well. Coming off new highs just a couple of days ago you would not expect much damage in the averages and there is not. Last week saw an almost staggering 800 12-month new highs on the NASDAQ and NYSE stocks above the 200 day remain a respectable 65%. Though it seems a bit contradictory, nonetheless there has been a loss of momentum. The advance/decline index, for example, has teased a couple of new highs, yet basically has gone nowhere since the start of July. And it has been negative seven of the last eight days. These crosscurrents lead us to more caution, especially after Wednesday.

If you are sitting there wishing you had more money to invest but you don’t, that’s one thing. If we all are sitting there wishing we had more money to invest but we don’t, that’s quite another. When all of the money is in, that’s the top. When the news is so compelling it draws in that last nickel, or even if it is the simple greed of FOMO that draws it in, that’s the top. Argue earnings are great or P/E’s are reasonable, it doesn’t matter. It’s about the money, it’s about liquidity. We remember the days when liquidity was measured by mutual fund cash levels. That never seemed to work, and now sideline cash seems even more difficult to define. One way may be to let the market do it for you. At market peaks the big-cap averages, all of which just made new highs, are the last to give it up. The average stock, however, does so long before.  It takes money to push up 1500 stocks or so every day, making the A/Ds not such a bad measure of liquidity.

We have long thought the thermos to be the best ever invention. It can keep things hot, it can keep things cold, and all without any wiring or electronics. Next to the thermos might be the 50-day moving average. It can stop rallies, it can also stop declines, and it’s best to stay on its good side. Of course, there are a few other conditions. In the case of countertrend rallies, for example, typically it’s difficult to break a 50 day that is leaning against the rally. For IBM (281) it did take five or six days for the stock to move above the 50 day, but it did so decisively. The issue now, and there’s always something, is the 50 day is still falling. While a low seems in place, a move higher could wait for the 50 day to catch up, then too, now it is a Quantum stock!

Gold is up more than 40% this year, but has done so in such an orderly way it looks higher still. Industrial Metals themselves look precious, and the Rare Earth Metals have yet to become more abundant. The Bitcoin Miners no longer just mine Bitcoin, they sell power to the likes of Google (GOOG – 247). And as per the IBM news Thursday, the Quantum stocks have rallied sharply. Meanwhile, poor tariff ridden China chugs higher. Maybe for their antique value, Oil stocks are higher as well, and the charts at least respectable. At only some 3% of the S&P by market cap, a decent move doesn’t take much. Improved are the Biotechs, not so much mainstream Pharma, but the latter at least have some insider buying.

Having done a rather spectacular job of ignoring bad news, stocks came down Wednesday and Thursday on seemingly no news. While the overall numbers were bad enough, for some stocks the excess came out like water. One or two days are just that, but for a Market with a few issues they should not be ignored. Even a look at the best part of the Market, the averages themselves, offers some concern. Last week marked the unusual breakout of all four of the major averages to record highs together for the first time since 2020. Historically this signals favorable momentum, but this time could be a little different. As the S&P hit an all-time high last week, only about 55% of its components were above their own 50-day average, while 65% or more is the norm. This lack of momentum even within the S&P makes the breakout a bit suspect.

Frank D. Gretz

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