Let's begin today by talking about the mega-cap tech stocks. It has been my contention this week that it was time for them to take a bit of a back seat and time for the small caps -- or the "others" -- to have a chance to play. The last few days, that's what we've had, but let's get back to the growth stocks.
It's obvious to see the direct relationship in February and March when interest rates soared (well soared on a relative basis) and the Invesco (QQQ) (what I will use as a proxy for the growth stocks) sold off. But I want to focus on what transpired in May. In mid-May everyone was convinced rates were going up. Two percent was a common target. Look at the blue box on the chart of the yield on the 10 year note. No one cared that rates weren't even over 1.7% when they had gotten to 1.75% in March. Nope. Rates were going up they said.
And that meant, as the narrative went, that you simply could not own growth stocks. Growth stocks didn't like higher rates, they didn't like inflation. But look at the QQQs, because they were the inverse of rates, weren't they? They were not making lower lows (blue box). There were plenty of days when bonds were down (rates up) and tech stocks didn't care. Sentiment was so bearish on growth that the National Association of Active Investment Managers (NAAIM) dropped their exposure to 44.
That in turn led to the romp upward we had in June. July has been choppier. But it has been in July that the complacency has returned in full force when it comes to these stocks. Think of it this way. Facebook (FB) disappointed and folks had a laundry list of excuses why it didn't really matter. Shrugs we saw.
Apple (AAPL) didn't give great guidance, but hey, it's Apple, they always sandbag. No big deal. This is a far cry from the hysteria in May when Apple was in danger of breaking $120 and had come close to visiting the 200-day moving average.
Now on Thursday evening we see Amazon (AMZN) disappoint. I have now heard excuse after excuse about Amazon's quarter. I see all of these reactions as complacency. It took them three months to hate growth/tech stocks in the spring and they have only just warmed up to tech/growth again in July so how can they turn so fast against it?
But go back to that chart of interest rates. It's been nearly two weeks since rates made that low. I think it is going to take longer for us to know for sure if that was the low in rates. (I think it will end up being the area rates bottom at, just as March was the area they topped at.) What I am starting to see is that there are days when bonds are up (rates down) and the "others" don't care. Actually instead of calling them the others, let's call them the reopen stocks. Perhaps over the course of the next few weeks these stocks will start to shape up as the growth stocks did in May.
Breadth was good on Thursday; it wasn't great. But it was enough to get the McClellan Summation Index to stop going down for the first time in two months. You can't even squint and see it, but it happened. Even the number of stocks making new highs on the New York Stock Exchange increased to 200. The fly in the ointment was sentiment, because the put/call ratio sunk to .68 for the lowest reading since July 1.
The New York Stock Exchange's Overbought/Oversold Oscillator even made it over the zero-line.
With Friday as the last day of the month and Monday the first day of the new month it's a coin toss to me but the oscillator will be back to an overbought reading early next week. But I'm going to watch those reopen stocks to see if they can improve in the coming weeks.