I left my desk for two whole days and everyone seemed to have a realization.
Yes, Monday seemed like a "realization day." You know, the day folks realize exactly why bonds are going down and interest rates are going up. And they were reminded of last spring, when rates climbed and mega- cap tech stocks fell.
A few short weeks ago, Barron's had mega-cap tech on the cover. At the time, I highlighted it with a reminder that they finally discovered inflation in mid-May and two weeks later that was it for the inflation/reflation trades. I suggested that a similar situation could develop for those mega-cap/index moving stocks.
It was also a few short weeks ago I compared those mega-cap tech stocks to the tennis player Novak Djokovic, noting no one thought he would lose the U.S. Open and yet he did. No one thought those mega-cap tech stocks could fall out of favor, yet for the last week, they haven't been in favor, have they? This market has been about group rotation for the last 18 months and that trend remains in place.
There are the index movers and everyone else. The Index movers do not represent the majority of stocks, but rather the S&P 500 and Nasdaq. And on Monday, the realization was that the index movers are not always in favor.
Breadth was good in that it stayed positive on Monday. That means the McClellan Summation Index is still rising, but it is doing so in lethargic fashion. The small caps have rallied 5% in the last week and the Summation Index has barely lifted itself up. It needs a net differential of negative 800 advancers minus decliners to halt the rise, which isn't much of a cushion in a market that has lifted as much as it has. I will monitor breadth closely as we head into the remainder of the week.
Then there are the bonds. I said last week that I think interest rates are going higher and I still think that. I do not think they are going higher in a straight line. I suspect they take a rest for a few days later this week. You do not need to be an expert chart reader to see there is resistance in this general 1.50% area.
Finally we have the end of the quarter upon us in a few days. I honestly never know if folks will square up and buy and sell what they just want to show on their books, but I know the Overbought/Oversold Oscillator is not yet overbought. My notes have said and continue to say that I expect an overbought condition to arrive near the early part of October. That means if we get a down or choppy day or two I would expect another rally.