A Whole Lot of Churning Going On
It seems as though the market has been correcting, but via rotation, rather than all at once.
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I am a big fan of watching how the banks do relative to the S&P. I am also a big fan of watching the semis relative to Nasdaq. Do the two groups have anything in common? Oh, I’m sure someone can find something, but to me, when those two groups lead, we should pay attention.
I have been surprised that despite the massive move in the SOX over the past few months, relative to Nasdaq, it remains far below where it was a year ago. What’s more, despite NVIDIA NVDA breaking out and becoming a 4 trillion dollar market cap in the last two weeks, the ratio has stagnated (blue box).
I think it goes back to the discussion we had on Friday: most of the action has been in those rocket-fueled (pun intended) names.
What interests me is that the Bank Index, relative to the S&P, is pushing at its one-year highs. It has not been able to get through this level all year.
These two groups have been stagnant thus far in the second half of the year. They have not rolled over; they have just not followed through on their second-quarter performance. I believe it is part of the pile-into crypto and rockets. That is why the market all of a sudden feels quite speculative, because most, not all, of the names that have been go-tos for the longest time are stagnant, and the money is pouring into these non-mega cap names.
Just look at Netflix NFLX. It’s not as if their earnings were terrible, but the stock is down just over ten percent since we entered the second half. In the big picture, the stock could correct all the way to that line and still keep the uptrend intact, but if you own it, the third quarter has not been a good one.
Is that how the market is going to correct? Just by giving us group rotation? I like a proper correction because I think it resets everyone at the same time. It tells us which stocks folks want to buy and which ones they were just speculating in. Yet, thus far, we have not been able to get a correction. We’ve just gone sideways since July 3rd.
Now, take a look at what that sideways action has done to the Overbought/Oversold Oscillator: it has taken it down under the zero line. Even I am shocked by that. We saw something similar in late January.
In the last week, we’ve also seen the McClellan Summation Index turn down.
Even the cumulative advance/decline line hasn’t made much progress in the first two weeks of July.
I suppose my point is that despite all this excitement in these small stocks lately, there’s mostly been a whole lotta churning for two weeks now. It’s as if most stocks have packed up and gone on vacation, leaving the ‘kids’ at home to run amok. We’ve all seen the movie Home Alone.
