From the desk of Willie Delwiche.
Key Takeaway:
- Friday’s rally needs follow-through to change the environment.
- Narrow strength and broad weakness producing more new lows than new highs.
- Yields pull back, but stress is building.
After Friday’s bounce, the Value Line Geometric index is at the same level that it was to begin 2021, which is also where it was to begin 2018. For those so inclined, it hasn’t been so much a buy-and-hold environment as it has a buy-and-hold-on-tight environment. While there have been pockets of strength along the way, they have not persisted.
The challenge for the indexes right now is that the sectors that are seeing the best strength are relative lightweights. Between 60% to 80% of stocks in the Consumer Staples, Utilities and Energy sectors are trading above their 200-day averages (for the S&P 1500 overall, it’s less than 25%) and combined these sectors make up less than 15% of the index. Narrow strength and broad weakness make for a shaky foundation on which to build rally attempts.
