We had a slight change of pace today as the upward trajectory of the indices slowed, but what was most notable was that action under the surface continues to deteriorate.
Although the Nasdaq 100 ETF (QQQ) finished slightly positive, breadth on the Nasdaq was extremely negative with just 840 gainers to 2,100 decliners. A few big-cap names covered up the weakness again. Apple (AAPL) and Nvidia (NVDA) covered up quite a bit of weakness, but the narrowness of the market is becoming worse. (Apple and Nvidia are part of TheStreet's Action Alerts PLUS portfolio.)
During the course of the day, there were a variety of stats making the rounds, all of which illustrated how the indices are not reflecting the true nature of the market action. The one stat I find most striking is that just 55% of stocks are over their 200-day simple moving average of price. In other words, they haven't been trending up for many months.
The dilemma is that you can't capture this weakness by shorting the indices. The computer algorithms provide relentless support and make all the underlying problems irrelevant. At some point, this is going to reverse, but timing is the million-dollar issue.
Very selective stock picking is still working. My Stock of the Week, Jupai Holdings (JP) , being a particularly good example, but when breadth is this poor, you really have to be careful. Strong markets will bail you out of bad picks to some extent, but this is not a strong market outside of the indices.
When the market has been so steadily strong for so long, there is an inclination to read too much into minor weakness. Part of that is just wishful thinking on the part of folks who want pullbacks, but minor weakness is normal in the course of a strong market. This market has corrupted the normal ebb and flow of action, making it easy to overreact to minor softness.
By any measure, it is an odd mix of action, but the bulls maintain the edge and that is all we really need to know for now.
Have a good evening. I'll see you tomorrow.
