What's It Mean for AI That My Mother Downloaded Perplexity?
Yep, she likes it. Let's check under the hood as the major indexes inch upward, see which group gets the nod next, and revisit an old Wall Street adage about rallies.
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I was asked last week if my mother has asked about AI stocks yet. She has not. But she did report to me that, at her neighbor’s urging, she has downloaded Perplexity and likes it. Is the next step in the process, her asking about the stock (I know it is private, but she does not)?
In the meantime the group rotation continues. And each rotation lasts a few days, maybe a week, before it peters out and folks move on to the next group. Last week was the drugs (finally!) but also notice how the software stocks, as soon as there were articles covering the front page of the Wall Street Journal saying how LLMs were doing in the SAAS companies, the software stocks rallied. It is as if they are destined to run in every short out there.
Can you imagine if they decide to rally the energy stocks? Then I am not sure there will be anything left to rotate into. In fact, I am reminded that there is an old adage on Wall Street that energy is the last to rally.
Although I am unsure if energy can catch fire for a few days. I like the ratio of VanEckk Oil Services ETF OIH to Energy Select Sector SPDR Fund XLE to see if OIH is outperforming to determine an energy rally. As you can see from the chart below it’s been in a very gradual uptrend since April but it’s lagged greatly in the last few weeks.
Speaking of ratios, the SOX continues to underwhelm the Nasdaq, having made a high for this rally (from April) in early July, and is still well below the highs from the summer of 2024.
And the banks relative to the S&P 500 also peaked in early July, having not been able to get over that level they saw in November and again in February. So those two key groups have been rotated out of (on a relative basis) for six weeks now.
That leaves us with a market where the indicators haven’t changed much in weeks. The McClellan Summation Index, despite last week’s "493" rally is still heading down. Even the Nasdaq’s, where I use volume, is still heading down. And that is with the Nasdaq’s volume (up minus down) having been positive for the last 10 trading days.
You can see the Overbought/Oversold Oscillator finally lifted, after having been down (oversold) a week ago. But despite all that rallying in the others last week, the Oscillator remains at a lower high. And now leans toward an overbought condition.
The major indexes inch upward but under the hood not much has changed except which group gets the nod which week. With the Daily Sentiment Index (DSI) at 17 for the VIX I would think we could use a bout of volatility.
