If things are so great for the market, then how come…

June 21, 2024No Comments


Today I’m going to [00:00:30] be asking you, the good viewership a question. And that question is, “If things are so good in the US markets, then how come”?

Now, I’m going to fill in the rest of that question in a moment when we go to look at some charts, but I want you to observe these charts and ask yourself if things are so good on the S&P 500, for example, how come the other charts [00:01:00] maybe look a little different? Let’s get right to it and look at the S&P 500 index in the US. Now I’m focusing 100% on US markets here. I’m not looking at the TSX or any other international market today.

I’m strictly looking at the S&P 500 and it’s the benchmark. Now I’m going to look at some other widely followed indices in the US, but I want to contrast and compare them here, and I’m [00:01:30] going to start with the S&P chart and note that the S&P has made a new high. There’s 5,200 that was hit earlier in 2024, and here we are at 5334 as I read this on June the fifth. We’re making new highs. That’s great. Well, maybe not. If things are so great, then how come we have negative divergence on every one of these momentum indicators? [00:02:00] This is money flow. This isn’t a price momentum; this is a money flow momentum. It does incorporate price, but what it does is it looks at advanced declines and then it reads the velocity of changes.

Well, take a look. It’s diverging negatively. So that’s interesting. The Mac D. Now everybody follows the MD. Well, how come if things are so great and the S&P’s making new highs, then [00:02:30] how come the Mac D is diverging negatively? Number three R-S-I-R-S, I went into mega-overbought territory. When it hit that level, the S&P hit that level of 5,200. Well, here it is at 53 and change and it’s at a lower level. That means momentum is slowing down. Well, if things are so great, then why is momentum slowing down on all of these indicators? The less money going in or less momentum of money going in, less [00:03:00] velocity by price is going in the market. I’m asking if things are so great, why is this happening? Alright, let’s take a look at another chart. I want to go to the S&P equal weight.

Now, this is just the S&P 500, but instead of assigning 30% of its value to seven or so stocks, it’s assigning equal weight to every component of the index. And by the way, there’s [00:03:30] a few more than 500 in the index. I think it’s something like 506 or something like that. You can look it up. Whatever the case, it’s close enough to 500 and you can see this is a lower high. This is not a higher high. Hey, wait a minute, this is the equal weight S&P 500. It’s the 500. So why isn’t it making a higher high? Could it be that there’s just a few soldiers doing [00:04:00] all the fighting? Just asking. Alright, let’s go to another chart. I’m going to just randomly sort of rip through some commonly followed US stock market indices. Now this is following the Russell 2000.

This is an ETF. It’s the I-W-M-E-T-F. And you can see it is not making new highs. That’s the small caps. Okay, interesting. How come, if things are so great, [00:04:30] that the small caps are not moving along with it? Well, truthfully, sometimes they don’t. But as we move up the scale, here’s the mid-cap stocks and there are a lot of mid-cap stocks that will follow the S&P because they’re pretty big just as into themselves. So why is the mid-cap range not making a new high along with the S&P 500? Why are the mid caps diverging gown in momentum right across the board? [00:05:00] Alright, so that’s another question for you. I want to now look at the New York Stock Exchange. This is the New York Stock Exchange primary index and basically, it’s the whole shebang. It’s all the major US stocks on the New York Stock Exchange.

And you can see it did not make a new high. And yes, it has been moving negatively on the [00:05:30] momentum indexes. So, we have all these negative signs of momentum and no new high. Alright, so let’s ask ourselves a question. Why is that nothing else including the equal weight S&P 500 itself, which is the S&P 500. It’s just not focused on a very small list of stocks. Why are none of the other indexes in literally most of the other stocks, [00:06:00] most of the other stocks not moving to new highs in the face of the S&P 500 making the new highs? Well, let’s take a look. Let’s find out why that might be. Guess what? It’s because of the holdings that are typical of the Nasdaq.

The NASDAQ holds the high tech and biotech. [00:06:30] Okay? S&P is not super overweight in biotech, but this sure as heck is overweight in technology. So, it’s been technology clearly that’s been doing all the lifting because if you look at the last high in the NASDAQ and then the most recent high, it’s miles ahead of the last high. We are not in a position to say, and by the way, I mean I will say that even on the momentum indicators, they’re not exactly [00:07:00] cooperating too much, so they’re not quite as bad. You can see RSI is flat more or less. The MacD is negatively diverging, not quite so bad, and we’re seeing the hookup here, but on money flow. But still, you’re not getting that great confirmation that you typically get in a real bull move like this when they’re moving up with the market like here.

So, if it’s moving up and that’s moving up pretty strongly, you’re sure as heck not seeing that right there. So, these are all little signs [00:07:30] that are telling me that something’s amiss. And I’ll take a look at one more chart. I meant to show you this, which is the Dow Jones Industrial average, and it’s even got a few of the tech stocks in it like Microsoft. So, you still don’t have that major higher high. You have a slightly higher high, but hardly we’re talking about. But you certainly do have major, major, major divergence of momentum, whether it’s money flow or price momentum that’s tanking on the [00:08:00] Dow industrials. I bring all this to your attention to show you the divergences that are happening across the board because there’s something funny going on and that is that you’ve got a very, very small group of stocks that are doing the lifting.

So, my question to you is, if things are so great, then why is it only just a few stocks that can even make new highs [00:08:30] and show strong momentum? The second part of that question is how long can this continue? I’m not saying it’s going to end this week, but I’m going to say that you can’t have this kind of situation going on forever, anybody that has lived through bear markets can tell you. And I’m going to give you a little list of bear markets that I’ve lived through as a professional, let alone as a private investor before 1990. But I lived through the [00:09:00] crash in 2001, which was really the terrorist act, plus the tech bubble crash in 2000. And I lived through the subprime mortgage and oil crash of 2008 nine, and I’ve lived through the 2022 bear market. I don’t know if I want to call it a crash, but certainly, it was 20 plus percent.

So, I’ve seen my share of longer-term bear moves and they’re always led [00:09:30] by focus on a particular group. Each one of those, you can call ’em, there was the subprimes. Well, there was a lot of focus on subprime and oil back then. Oil to 200, that was a theme in 2001. There was a lot of focus on the new internet.com stuff. In every case, and in ‘22, we also saw a focus on what’s called the fangs, which actually, interestingly enough is a similar [00:10:00] focus to today, but slightly more focused now on the AI stuff like NVidia. So, whatever the case, every bear market is proceeded by an irrational exuberance, I guess you could say, towards a particular sector. That doesn’t mean it ends when you think it’ll end, but they always end.

Ask yourself if things are so good on the market…

If things are so great, then how [00:10:30] come we once again have a small group leading the charge and the charts are showing us that a lot of other stuff is diverging negatively and even the price momentum is starting to slow down. If things are so good. How long can this last? I don’t know the answer to that. I’m just asking. Have a great day. See you next week.

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