On the Unobvious Nature of Topping Markets

Just remember this, my girl, when you look up in the sky,
You can see the stars and still not see the light

—The Eagles

“Lastly,” he said, “we believe the quality sector will inevitably catch up to the rest of the market.” He, being my investment advisor former colleague, desperately putting lipstick on the pig that was the disgruntled client’s portfolio.

Can’t say that I’m sorry that I no longer have to do that sort of thing. Defending the firm’s boneheaded research was torture in my day. No different now, obviously. The problem with being an investment advisor is the requirement to defend the indefensible.

Catch up to the rest of the market? Tell the client the truth, for God’s sake. Most of the market sucks, probably more than the portfolio in question. This histogram prepared by GKCI, an independent money management group, shows that only 521 out of 2850 stocks in their proprietary All Country World Index are up since the 5/21/2015 peak. The red group, roughly 82% of the index, are down anywhere from 6 to 90 percent.

most stocks are down since may 2015

Domestically, barely a handful of stocks, institutional favorites, are painting the tape, making the Dow Jones Industrials and the S&P 500 look far better than the market as a whole. This is typical ending action: a long bull market running out of gas.

Meanwhile, Dow 15,000 has not been breached yet. This is the Maginot line that supports the Elliott Wave prospect of another new high. It is a surprising thing, given that data on the economy continues to deteriorate:

The four week average in initial jobless claims has pushed to new cycle highs at 287,000.

Durable goods orders crashed 5.1% month over month, with the core non-defense shipments segment down 7.5% year over year, the worst reading since Lehman (’09”).

The entire mining sector is now so financially suspect, that Moody’s states, “We believe that the current environment is not a normal cyclical downturn but a fundmental shift…a wholesale recalibration of ratings in the mining industry is deemed necessary. Whoo, boy!

So why would the market go up? We will probably read that traders are going to bet that the Fed will not raise rates and may even lower them again in a weakening economy. My take is that a rise here is a reflection of social mood, which may be turning sour on spending, but is still hanging on to hopes that “tomorrow” will be better.

Weirder things have happened.

Cheers,

Rod

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