Would you like to hear something unusual that happened during Thursday's market? The Utes were up more than the QQQs. Off the top of my head I figured that was a rare occurrence since if the QQQs are ramping folks do not tend to be so defensive by buying Utes. Someone decided to "run the numbers" for me. It turns out that since their inception the QQQs have been +1% on just over 1,000 days. Only 97 days have we seen the Utes beat them out on those up days.
The other oddity is that outside of big tech the strong groups were all defensive in nature like food stocks and toilet paper. And REITs. This means small caps underperformed. Banks underperformed too. So did the Semis.
I am always focused on banks and semis because I see them as leading groups. They have been terrific in January so perhaps the last few days are simply days of rest. You can see the SOX relative to Nasdaq peaked a week ago as did the Bank Index relative to the S&P.
So far it has only been one week since they peaked and they were strong outperformers for the month as a whole but this is something to keep an eye on, especially if small caps stop outperforming. There is nothing wrong with big cap tech doing well but when it does well at the expense of everything else it is a problem for the market overall. It's as if the soldiers are retreating and the generals are left to fight the war.
If the trend continues we would see it in the breadth readings and thus far breadth has not faltered. In fact, the number of stocks making new highs on the NYSE chimed in at the same level it was in mid-September.
Some folks want to scoff because so many of the names on the list are REITs. Do you recall back in September when I complained about the increasing stocks making new lows and everyone shrugged and said, "who cares it's only Muni Bond Funds?" I care.
First of all I do not like to rationalize an indicator. But think of it like this: the Muni Bond Funds on the new low list told us folks fretted over interest rates. Maybe the rally in REITs tells us folks are not so worried about interest rates now? And like it or not, interest rates matter to stocks.
Speaking of interest rates, the Daily Sentiment Index (DSI) went to 82 for Bonds on Thursday. I will grant you that this is not the best uptrend line I've ever drawn but I do not expect the yield on the 10 Year to break under this 2.60%-ish area on this trip down and with the DSI at 82 we have to figure a trip down there should get this close to 90. That previous low saw a reading of 96 which was really extreme.
The DSI measures the amount of bullishness in the market so readings over 80 suggest we're too bullish while over 90 are extreme. I think we should see rates head back up next week.