Authored by Sven Henrich via NorthmanTrader.com,
Unemployment at 3.8%, earnings growth at 26%, Q2 GDP growth pegged at a solid 4% or so, $NDX and small caps making new all time highs week after week. Markets ignoring all potential bad news (i.e. potential trade wars, political drama, etc) and volatility again crushed with no signs of fear or concern with a record corporate buyback program to the tune of $650B offering a consistent bid under the market. In short: Everything looks rosy.
So why is the broader market not taking notice? Why, in fact, is the broader market not only not making new highs, but why is the vast majority of the stock universe not only lagging, but showing potentially larger bearish patterns?
These are important questions for investors to consider as a number of market mysteries are unfolding beneath the positive headlines.
Consider the massive bifurcation we are witnessing:
Here’s the $NDX screaming to new highs, yet the broader $NYSE is not only down on the year, but it negatively diverged during the latest $NDX rally:
Let’s dissect them both a bit.
Firstly, the $NYSE, not only is not anywhere near the January highs, but it’s engaged in a potential larger bear flag pattern:
Never mind the January highs, the index is well below even its February and March highs, despite the recent rally that has followed a now regularly scheduled program of rallying near the beginning of each month:
Indeed, here we are after a multi-week rally and nearly 42% of $NYSE components remain below their 200 day moving average:
And don’t think $NYSE is the only index exhibiting this notable relative weakness.
Consider financials who have shown record earnings and theoretically should be benefitting from tax cuts and buybacks are also struggling. Consider that financials are in essence flat on the year and Goldman Sachs is actually down 8% year to date.
Indeed the financial sector, like $NYSE, is exhibiting a bearish chart pattern:
Contrast this with $NDX which just last week again printed new all time human history highs. $FAANG stocks such as $AMZN, $NFLX, etc are marching on to new highs every day. $NFLX is up over 100% on the year, $AMZN up 46%. Stocks that keep expanding market caps to unseen levels and appear bulletproof.
Yet here too, in the almightily $NDX, we can observe a massive bifurcation. Note with each rally the number of $NDX components reaching above their 200 day moving average is getting weaker and weaker, an internal deterioration that has led to market accidents in the past:
The main message: Index gains are driven by fewer and fewer stocks.
Again I have to ask: If things are so great then why are thousands of stocks not participating in this rally?
As I’ve outlined previously the narrowing of value expansion in favor...