Is the American Exceptionalism Trade Over?
Let's talk about some of the conditions needed for a bottom and whether we're getting closer.
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I saw something on television Monday that I haven’t seen much of lately. Last week, I noticed that the majority of guests who are wealth managers are pretty sanguine about the market. They might not love it here, but they refuse to get bearish. They remain buyers.
They insist that we should ‘leg in’ because –and you know this is my favorite part—you can’t time the market. We know what that means: it means they can’t time the market. Be that as it may, on Monday, I noticed a small shift. One strategist who has been bullish the entire way down is now a wee bit cautious in that she likes cash. I am not making this up.
She, too, thinks you cannot time the market, and my favorite part of her conversation was when she said, and this is a quote, “Technicals don’t matter.” I have seen her talk ‘moving averages’ before and RSI and such, so I guess technicals only matter when, gosh, I don’t even know, maybe it’s when she can say things like ‘the 200 day moving average is support’. Helpful.
Anyway, I don’t really mean to pick on this particular person so much, but it was also interesting that she now sees that ‘The American Exceptionalism’ trade is over. In fact, this feels like we’re heading into a Realization Week for that narrative. It’s now bantered about nonstop. And everyone seems in agreement.
If the Daily Sentiment Index for the Dollar were near single digits, I would think it’s time for a rally in it and by extension US assets, but we’re not quite there yet, as it is 25. The DSI for Nasdaq is back to 20. But the chatter is getting loud.
In any event, I thought we had the chance to rally again this week, and Monday clearly did not go that way. Yet I am now watching stocks making new lows because they did not expand greatly on Monday.
Nasdaq’s new lows were just shy of 200. Back on April 9th they were 1757. I therefore ask myself if Nasdaq falls another 600 points (taking it back to the April 8th closing price), would there be fewer than 1757 new lows? I think so.
Yesterday we talked about the bottoming process so let me use the new lows to go back to 2008. New lows peaked in October 2008 around 1500. We had a little rally (it looks tiny on the chart, but it was about ten percent) and came down again, to a lower low, later in the month. New lows were fewer.
We rallied again in early November and down we went, with more new lows than late October but fewer than November.
As we slid in February and March, the new lows were one-third of what they were in October. Yet Nasdaq (lower panel) made a lower low (than November). That’s how the bottoming process works: the indexes go lower, but individual stocks start to hold and show higher lows.
Finally, if you are surprised that the Oscillator went up on Monday, that’s because we replaced a big negative number with a lesser one. The window to rally is still open.
