Rev's Forum: Climbing Nasdaq Index Hides a Broader Truth

 | Jan 10, 2017 | 7:29 AM EST
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Stock quotes in this article:

FB

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tsla

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googl

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QQQ

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yhoo

"There are no secrets in life; just hidden truths that lie beneath the surface."

--Michael C. Hall

The main story of the market recently is that while the Nasdaq is hitting new all-time highs the other major indices have been churning and making little progress. This is caused by a narrowing of market leadership. A small group of bigger stocks, primarily Nasdaq names such as Facebook (FB) , Tesla (TSLA) and Alphabet (GOOGL) , have been trending up while small-caps have been lagging. (Alphabet and Facebook both are part of Jim Cramer's Action Alerts PLUS charitable trust.)

A good illustration of what is going on is that the Nasdaq 100 ETF, PowerShares QQQ Trust (QQQ) , gained 0.4% yesterday while market breadth was about 2,450 stocks gaining to 4,250 losing names. Obviously the QQQ is not reflecting what is going on in the great bulk of the market.

So, why is this happening and what does it mean? The main thing that tends to drive outperformance by a smaller group of big-cap names is that investment managers are trying to put capital to work. The year started with some quick gains and that caused many managers immediately to lag their benchmark indices. The only way for them to catch up is to pile into the liquid high-beta names and hope they move up faster than the indices.

Another reason for this disparity in performance is that there are reversals of some of the year-end moves as well as some concerns that the Donald Trump election rally is starting to fade. Market players sold losing stocks for tax reasons to end the year and now there is an inclination to lock in gains on winners that they deferred for tax reasons.

The primary issue now is whether the market will continue to be optimistic about new fiscal policy under Trump. The president-elect is scheduled to give a press conference tomorrow and market players will be listening carefully for indications of what will happen once he takes office. Estimates for economic growth are going up, but the risk of execution by Congress is very high.

Technically speaking, the market is holding where it needs to, but the soft action under the surface is a problem. Corrections often begin when the market narrows, but there are still pockets of speculative action that are helping. The JP Morgan biotechnology conference this week is a source of some good news and some big mergers are helping, too.

Yahoo (YHOO) will be receiving quite a bit of press coverage today. There are some management changes and it is changing its name to Altaba. My friend Dan Rosenblum tells me that altababa is the Yiddish word for an old grandmother, so it may be appropriate.

I am starting the day with a very high level of cash, which is a function of the recent weakness in small-caps. There have been some good movers, but they have been chasers and have not allowed putting much capital to work.

Early indications show small opening gains. Oil is bouncing and may attract some traders today.

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