From the desk of Willie Delwiche.
Key Takeaway:
- Sustained market strength tends to be quiet.
- Noisy price swings can obscure underlying downtrends.
- Bulls holding serve on rally but hardly pressing an advantage.
The price moves in this environment have been impressive in both directions. One-quarter of the stocks in the NASDAQ are more than 50% above their 52-week lows, but more than 40% are still 50% or more below their 52-week highs.
Last week, for the first time since early April, more stocks on the NASDAQ made new highs than new lows. That ended the consecutive streak of days with new lows > new highs at 83. This was more than two weeks longer than the previous record stretch (which ended in December 2008 - prior to financial crisis lows). Like many of the stocks that make up the index, the NASDAQ Composite is well off its lows. But it is still more than 12% below where it was the last time new highs exceeded new lows.
The noise of these price swings can obstruct an underlying (and more significant) reality. The longer-term trends remain lower. This bear market has largely matched what many investors have become accustomed to in terms of the duration of a down-turn in the post-Financial Crisis era. It is true that there are now more hopeful signs of a sustainable turn now than there were in March or May. We’ve seen a surge in upside volume and two weeks ago got our first breadth thrusts (based on a spike in 20-day new highs on the S&P 500), but the risk environment remains challenging. Our internal clocks may want to find an end to the bear market, but the price action does not support that conclusion.
