Market Overview – What We Think:
- Apparently bifurcated stock market with blue chips underperforming lesser blues makes us wonder at longer-term health of equities, considering fact futures as measured by Cumulative Volume (CV) and options (CPFL) have been less than stellar since May highs.
- Fact that short-term Momentum, Daily MAAD, and VBVI have returned to levels that could be followed by higher prices is encouraging, but unless all cylinders are firing in unison in weeks ahead, case for overall higher highs becomes problematic.
- In other words, new highs by COMPX, VALUA, and TFY is good for those holding portfolios weighted toward those issues, but one-legged race cannot sustain a bull trend indefinitely. At some point, either lesser blues must falter and get in line with weaker S&P and Dow 30, or latter two must power higher to get in synch with secondaries.
- Some may argue that perception is reality and that new highs by S&P and Dow 30 are irrelevant. We would argue, however, that if those two indexes continue to fail to confirm new highs in other indexes, something could ultimately prove to be amiss with broad market. Recent upside failure by CV in futures contracts and poor showing in options buying since June merely underscores fading enthusiasm, as compared to previous periods.
- In background there is lingering potential for problems on larger cycles in that fall period has historically been backdrop for some of worst declines in stock market history. Think October 1929, October 1987, and October 2007.
Also on the obvious front, prices remain in Intermediate and Major Cycle uptrends, weaker performance in the Dow 30 and S&P 500 notwithstanding. But even recent short-term weakness in the 500 and the 30 has not been intense. In fact, it looks more like “normal” corrective action within the contest of the next larger Intermediate Cycle. Enthusiasm in COMPX, VALUA and the TFY underscores the below the surface optimism. Even NYSE Up/Down Volume on a cumulative basis squeezed out a new high last week.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)