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A Weak (overall) Market Continues July 10, 2021

Posted by Tom in Thoughts.

July 9, 2021 – Few “old adages” hold true but I think this one is toward the top of the “believe it” list: ‘Weak Markets React Poorly to Bad News, While Strong Market Just Sluff It Off’. We saw evidence of that on Thursday when the market opened much lower, then recovered; concerns about Covid regeneration. By Friday we where generally back to the old highs. Just about anything could and will trigger the nervous holders in this market. We know why, the market is overvalued, margin debt is high and speculation (ROBO Call buyers) is near an all time high. Most ‘Buyers’ have already bought. Just a little selling triggers more selling.

click on chart to enlarge

But, other than the sensitive red price bars above, things remain positive. Note the low volume so there’s not much enthusisium in either direction; likely the reason why the selling was brief. But damage was done in the overall market.

The pie chart below shows the price weakness of stocks in the broad S&P 1500 Index.

Neutral means stocks are hovering near their 20 day simple moving average. Strong and Weak refer to where their prices are in relation to their Bollinger Bands (20 SMA +/- standard deviation volitivity). So no red flags, but no green ones either. Perhaps we’re in the Summer Doldrums where not much happens either way . . . unless a news item generates a move. Making money in this environment won’t be easy.

Let’s look at where the broad market indexes have been over the past year:

click to enlarge

Red = the S&P 500 (large cap); Blue = the Russell 2000 (small cap); Green = the broad NASDAQ Composite Index; and purple = the NASDAQ 100 index (tech heavy). Small cap’s where the place to be over the past year. But . . . .

click to enlarge

Small cap’s were NOT the place to be over the past 90 days. A good example of rotation in the market. Small cap’s are generally considered to be most speculative and it looks like the “smart money” is preferring the large cap and more well known stocks. This supports the idea that the breath of the market is narrowing, where fewer (big cap) stocks are driving the Index averages higher. Characteristic of a mature market.

Lastly the Short Term Sector Strength table:

Technology sectors in general still are near the top. Note the returns over the past 5, 10, 15 and 21 days are pretty positive. I do note again that the stogy Treasury Bonds are fairly high on the list with interest rates falling. Interesting that now inflation is not a concern . . . . is this a flight to a safe haven? Not sure why interest rates are falling in a strong economic recovery. Something to monitor.

So, if you’d like to see other topics covered, let me know via a response to this post. That’s it for now, have a good week. …………. Tom ………….

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


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