The indexes gapped higher at the market open on Monday, and breadth is better than two to one positive. However, buyers aren't generating any sustained momentum, and underlying action is lethargic at best. There are over 160 new 12-month lows and 120 new 12-month highs, illustrating mixed sentiment and how little speculative action is occurring.
An upgrade and target increase of Tesla (TSLA) to $400 from $250 by Morgan Stanley is driving the stock up by about 9%, as a I write this, which makes it the biggest gainer in the S&P 500 and Nasdaq 100. Media stocks such as Paramount Global (PARA) and Warner Bros. Discovery (WBD) are doing well in hopes that Disney (DIS) and Charter Communications (CHTR) will reach a deal, but mostly, it is just mildly positive action.
The indexes are just a superficial indication of overall market health. To really understand how well the market is functioning, it is necessary to dig under the surface. Breadth is one metric that helps to illustrate whether the market is being driven by a small number of big-caps or by a broader interest in a variety of stocks.
Another metric that I look at is the number of stocks that are making big moves on higher volume. This is a measure of speculative interest. When there are dozens of stocks up more than 10% on increased volume, it is a sign of a strong appetite for higher-risk stocks. That is what helps to create momentum that can produce big moves.
The current market is lacking that speculative ingredient. There are some stocks that are moving, but there isn't enough energy to attract more buyers and create fear of missing out.
Part of the reason this occurs is negative seasonality, which is self-fulfilling to a degree. The other reason is that there is a very difficult battle going on over the economy. The bulls are almost complacent about the potential for the end of inflation with only minor economic slowing, while the bears are convinced that these expectations are way off base.
I don't know who is right about the economy, but I do know that the price action of the market indicates a great amount of uncertainty. When the market decides on a narrative, it will be reflected in the action, and then we will be able to be more aggressive with trades.
