From Hysteria to Shrugs, the Market Is a Funny Thing
There is a reason I don’t put much stock in market narratives. Let's discuss the dollar, the yen, bond yields, Nasdaq volume and the all-important breadth.
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Markets are funny. There are times where we see outright hysteria over one piece of news or the move in a currency or a bond and other times where a similar type of move is yawned at.
I mean do you remember the absolute panic last August from the move in the yen? That arrow on the chart below shows you where we were then, right around 145. But now look at the chart of the U.S. dollar vs the yen and what do you see? It’s around 142. If you thought 145 was terrible in August then why isn’t it terrible now?
The Dollar Index, which I really thought would hold that 99-100 area and rally, only rallied to 102 and now it is closing in on the April lows. In April there was near hysteria over the weak dollar. The buck is supposed to be strong, they said. The fact that it is not strong is bearish, they said. Yet here we are almost at the April low and now I hear a weak dollar is bullish for stocks!
What about interest rates? We saw a plunge to 4% on the 10-year in early April, which everyone thought was okay (slowing economy, rates should fall), but then in a matter of days we had rates at 4.5% and that brought us hysteria in the bond market (and stocks too). Rates are now just shy of 4.5% and there are a lot more shrugs than there is concern.
I know someone out there will try and explain to me why it is different now vs. then but here’s what I know: There is a reason I don’t put much stock in market narratives because, as you can see, the narrative changes all the time. The things we worry about today are things we don’t care about tomorrow. Or sometimes we just ignore them until we can't ignore them anymore.
One thing in particular caught my eye on Monday. The Nasdaq’s volume. I have spent a good deal of time discussing Nasdaq volume and all the penny stock trading that has taken place. Monday, the Nasdaq’s volume fell to 7.8 billion shares. It turns out that was the lowest volume in a month for that exchange.
Right now it’s only one day, but if we get several more days with lighter-than-usual volume it will bring down that ratio we looked at Monday of the Nasdaq volume as a percentage of NYSE volume.
Aside from that do you realize that breadth has been red for eight of the last 10 trading sessions? We’ve looked at the chart several times lately. If the S&P 500 makes a move upward over that mid-May high and breadth cannot follow suit we’ll have to put this indicator on the negative side of the ledger.
Since, as you can see, we are a little short-term oversold thanks to the negative breadth we should see a day or two of rallying so let’s see what that breadth line can do. As a reminder, just because I think we can rally for a day or two doesn’t mean the intermediate-term indicators have changed. They remain overbought and I still think we are more apt to see a rise in volatility in the next few weeks than not.
