'It's Different This Time' -- Yeah, Right

 | Jul 17, 2017 | 6:00 AM EDT
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As I read a book on Mormonism this past weekend I saw quotes attributed to Joseph Smith, the founder of the religion, when he spoke to his followers just before his arrest and subsequent death in 1844. They struck me because as much as we want to believe the times we live in are so unique, they really aren't.

Here are the quotes: "The newspaper lies;" "The legislature lies;" "The Governor lies. Next I tell you, the President of the United States will lie to you." These resonated with me because we seem to think this whole notion of "Fake News" is new in our era and yet it clearly isn't, is it? It is never different this time. It always rhymes with previous times.

And still, we are starting to see headlines such as this one from the Wall Street Journal last week: "Why the Chip Rally is Different This Time." Or this, from MarketWatch: "It really is different this time for high-flying stock market."

What's not different is that the market's breadth has (finally) been positive for six straight days, the longest stretch since late May when it went seven straight. Prior to that it only went longer once: just post the Brexit low. When eight of the last 10 trading days have positive breadth it means the market is getting overbought.

What is somewhat different than just a bit more than a year ago (the post-Brexit rally) is that a year ago the McClellan Summation Index, which is based on breadth, soared when given so many consecutive days of positive breadth (red box). This time the green box is what we've gotten.

This time the Equity put/call ratio sunk to 53% on Friday. Readings under 60% typically see a short-term pullback. The last time it did so was July 3. Two days later we saw the market drop by about 1%

Meanwhile, the Daily Sentiment Index (DSI) for the S&P 500 went above 81% on Friday. Typically we see the market stall or pull back after the DSI gets over 80%. The last time it was over 80% was early June right after the S&P tagged 2440 and spent the remainder of the month going sideways to down. The Nasdaq promptly fell 4% from that June peak as well, although oddly this time the DSI for the Nasdaq is still below 80% at 76%.

What is not different is that overall breadth remains strong, having made new highs last week.

What is not different is that large-caps continue to lead small-caps, proving me wrong on my view that small-caps could lead.

So look for markets to pull back into the overbought reading this week and then rally again. That wouldn't be different either would it?!

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