Does Breadth Even Matter When Tech Is 35% of the Index?
It's all about the mega caps these days. As they go, so goes the market.
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Broadening out. That’s the phrase of the day. Or at least everyone who comes on television says, ‘we’re broadening out’.
As I have pointed out, breadth is not terrible; it is not great either. It is definitely not doing anything different than it has done most of the summer. I wouldn’t say the market is narrow, rather I would say we have group rotation but more so what we have is a handful of mega cap stocks that tend to suck the life out of everything else when they rally. And the market is okay with that because these stocks are in every ETF.
If you think about it, with technology as the top weighting in the SPY ETF, at around 35%, out of every $100 invested in SPY $35 goes into those top ten technology companies. How can a company in a different industry even compete with that? I mean financial services is the next closest at 13%.
So, you put one hundred bucks into spy and 35 goes to tech, but only 13 goes to financials. And it gets worse from there for anything not in those groups.
But that doesn’t stop me from looking at the indicators and even on the up days like Thursday they haven’t changed. I wish I could tell you that we’ve gotten oversold enough to have a sustained rally where we ‘broaden out’ for weeks on end, but I just don’t see it.
What I can tell you is that on this up day, the number of stocks making new lows on Nasdaq increased and is now the highest since that whack in the market on the final day of July.
Will it matter? Only if you own all those others.
That brings us to bonds which ought to move on the Jobs number Friday morning. I saw someone draw in this blue line on the yield of the 10-year, and I will say I don’t disagree with it.
But you see, I have been using the chart of TLT, and my view hasn’t changed there. I think we are in a wide trading range when it comes to interest rates, and using TLT, the bottom is around 82 and the top is around 92. I do not see us breaking out of that range in a major fashion.
If you told me what the Jobs number was going to be, I wouldn’t even know if bonds would like it or not. Quite frankly, I don’t even know if bonds would like a higher or lower CPI or PPI next week. All I know is that this looks like a wide trading range and if you were concerned that rates were going up three days ago when TLT tagged 85.50 then you should not get giddy should TLT get over 89 on Friday. The DSI doesn’t even help because it is at a very neutral 66.
