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Rally Continues, but Narrows April 28, 2019

Posted by Tom in Thoughts.
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April 26, 2109 – The march higher for this market continues, but it’s beginning to narrow down to fewer and fewer stocks.  More on that shortly.  Looking at the chart below it’s clear that all basic indicators are positive and now we’ve broken to new highs.  Earnings drive the market and generally they have been fairly good so far.  Next week will bring more reports, especially from the big name companies.

So . . . what’s to worry about?  Well, not to worry so much as to be concerned.  I thought it would be interesting to see just how many stocks (in the S&P 1500 Index) are at or near their 52 week high (price).  After all, most should be up there since the market indexes are . .  right?

The pie chart above shows that nearly half of the stocks in the index are actually more than 20% below their previous 52 week high (pink).  And, only about 25% are within 5% of their high (darker green colors).  What this means is that the climb in the index value is being fueled by fewer and fewer stocks.  The general term for this is “market breath”; i.e. how broad is the actual market and how many are participating in the rally.

Since many indexes are weighted by either the size of the company (S&P 500) or the stock price (Dow Jones Industrials) or by industry (NASDAQ 100 – technology) we sometimes forget about the “other guys”.  This doesn’t mean that “all Hell is breaking loose”, but it does bear watching.  If this narrowing continues into the major indexes and only the “big guys” (Apple, Amazon, Google, etc.) are participating, then we have a problem.  For the time being we just have to go where the price strength is and monitor the rest.

Speaking of price strength, here are the sectors that show it (in the short term):
In the same vein, no surprise that Tech, Internet, Consumer Services continue their leadership roles while Banks and Financials are catching up now. I continue to be long this market but I’m seeing fewer good opportunities.  Is it time for “Sell in May & Go Away”?  Could be, but in this 4 year election cycle it probably will be a minor correction that will be short lived.  We’ll see.  Nothing is promised, that’s for sure.

Have a good week.    ………  Tom  ……….

Price chart by MetaStock; pie chart & table by http://www.HighGrowthStock.com. Used with permission.

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