The Legless Stool Still Stands

 | Jul 31, 2014 | 6:30 AM EDT
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The bears are in awe of this market that refuses to go down. After, all the Russian/Ukraine situation only gave the market a hiccup. The Mideast? There was maybe an hour of selling. The answer everyone offers up is that the markets don't care about geopolitics.

I would beg to differ on that score. In the summer of 1990 the market cared a great deal as stocks plunged 20% when Iraq invaded Kuwait. In the first quarter of 2003 the market cared as we searched for WMD in Iraq, or have you forgotten the move to 800 from 900 on the S&P before we actually went to war in the Gulf for the second time and the market finally rallied?

Or what about the 10%-plus decline after 9/11? Does that not count either?

I think the answer is that when we have interest rates where they are -- at zero -- the markets don't care. Please do not extrapolate that markets don't care about geopolitics. They do. It's just that right now they do not.

Underneath the surface there has been a great deal of damage in the large-cap space, or what I have generally referred to as the stock-buybacking, dividend-paying big-caps. Look at the Consumer Staples Select SPDR (XLP). It's back at the May lows, having completed a top. Of course you have seen me complain about stocks such as Kellogg's (K) way too often here not to have realized this group was getting sold.

And what about the Industrial Select SPDR (XLI)? This is also in jeopardy of revisiting the May lows, having peaked in early June. The best news for them is that they are a little oversold after so many down days.

And just in case you haven't noticed the Energy Select SPDR (XLE), it has just broken its uptrend line. This is where all the year's winners have been and I think it is overcrowded, just like the semis were.

This brings me to the bulls. They might be thrilled the indexes are at their highs, but as you can see from these three charts, individual stocks are simply not keeping up with the indexes. We keep removing the legs of the stool and yet it still stands.

Yet, as I have noted here all month, the Russell 2000 has fallen 7-8% from its highs, so there has been a correction in at least one index. In the past two days the Russell has managed to not go down. I'd call it a rally, but can we call a 0.5% move in two days a rally? I suppose we can.

The best news the market had on Wednesday was that the S&P broke Monday's low and the number of stocks making new lows did not expand. There were 60 new lows Monday and only 55 on Wednesday. That's the first time we have seen that in the month of July.

The Fear and Greed Index got down to 20 before rallying (can we call it that?) intraday. It closed the day in the high 20s.

It would not surprise me at all if we saw Nasdaq and the Russell do better than the S&P, because those big-caps surely are struggling. 



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