SImple Lag or Red Flag?
Ok, so many people, including the immortal (in his own mind) Jim Cramer are saying that the bottom is in. Is it? Sure, it could be as I am not in the crystal ball business, but as I stated earlier, one major red flag in my opinion is the lagging of the NYSE Composite. Since the July 15 low, the NYSE Composite is up only 2.67% while the Dow is up 5.2%, the S&P 500 is up 5.84%, the Nasdaq Composite is up 9.61%, and the Russell 2000 is up 12.89%. Why is the broader based index lagging?
Also consider the choppy, non impulsive behavior exhibited by the indices off of the mid July low. Sure there have been some monster up days, but the indices seem too willing to give gains back for the market psychology to have changed. Just take a look at the Dow and S&P over the last month. The fact that tech is leading is encouraging, but in order for bull markets to be sustained, widespread institutional buying needs to occur, and the performance of the NYSE casts doubt on the presence of such buying. The NYSE advance/decline line is not exactly screaming to the upside either:
NYSE Advance/Decline:
One more point to ponder - European countries are showing signs of real economic slowdown. Are we to believe that the financially strapped US consumer is going to hoist the world economy on his or her back and carry us back to the land of economic prosperity? Highly unlikely with housing prices (the main source of consumer buying power) still headed in the toilet.
So those of you who don't think for yourselves and follow 'market gurus', be careful here. Something is wrong with this rally. Look for the bear to show its teeth again soon, probably as early as next week. Look for the Dow to make another run at 12,000 and the S&P to make another run at 1325 before the selling picks up again. I will end this piece with charts of the leader and laggard off of the mid July low for you to contrast. Those would be the Russell 2000 and the NYSE Composite. Remember - bear market rallies look good, smell good, and feel good, but you hate yourself in the morning if you fall for their seductive behavior.
Russell 2000:
NYSE Composite:
Also consider the choppy, non impulsive behavior exhibited by the indices off of the mid July low. Sure there have been some monster up days, but the indices seem too willing to give gains back for the market psychology to have changed. Just take a look at the Dow and S&P over the last month. The fact that tech is leading is encouraging, but in order for bull markets to be sustained, widespread institutional buying needs to occur, and the performance of the NYSE casts doubt on the presence of such buying. The NYSE advance/decline line is not exactly screaming to the upside either:
NYSE Advance/Decline:
One more point to ponder - European countries are showing signs of real economic slowdown. Are we to believe that the financially strapped US consumer is going to hoist the world economy on his or her back and carry us back to the land of economic prosperity? Highly unlikely with housing prices (the main source of consumer buying power) still headed in the toilet.
So those of you who don't think for yourselves and follow 'market gurus', be careful here. Something is wrong with this rally. Look for the bear to show its teeth again soon, probably as early as next week. Look for the Dow to make another run at 12,000 and the S&P to make another run at 1325 before the selling picks up again. I will end this piece with charts of the leader and laggard off of the mid July low for you to contrast. Those would be the Russell 2000 and the NYSE Composite. Remember - bear market rallies look good, smell good, and feel good, but you hate yourself in the morning if you fall for their seductive behavior.
Russell 2000:
NYSE Composite:
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