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Once again we washed, rinsed, and repeated Monday’s and Tuesday’s action with the only exception was the market was able to close above its mid-point. A positive durable goods number coupled with a positive new home sales number stocks had fuel to continue to move higher. But, like the prior two days sellers took over and hit stocks hard pushing them down to the lows of the session. Stocks spent a good part of the afternoon near these lows until a late day surge helped stocks finish above their mid point of the day. Volume on the NASDAQ picked up over Tuesday’s level while the NYSE volume fell. There isn’t much to read into on the NASDAQ volume as it was well below average keeping in mind the index was able to close above its mid-point. It sill appears the angst about Thursday’s GDP number is holding stocks back. On the whole, just another boring day in the markets fueling both bull and bear arguments.
The market is lacking the distribution days to really call for a market top at this point in time. However, if we do get a nasty distribution day in the near future along with our stalling days we may be in some trouble. For now, I am not willing to “call” a top as we may very well move higher. There are plenty of arguments as to why we should head lower, but they won’t mean much if the market decides it wants to move higher.
Although stocks getting above their 200dma are near record levels the amount of stocks over their 20dma are not. On a short term basis a better gauge of overbought conditions are the amount of stocks over their 20dma. At the moment only 71% of stocks are over their respective 20dma. If we were to simply single out certain secondary indicators of the market we can certainly spin the data. However, the better way to view this is within the context of the overall picture and not just a few data points. Remembering we are emerging from a terrible bear market and where the Federal Reserve Bank doubled the money supply we are going to see disjointed markets.
This is no big sceret but the amount of money flowing from Money Market accounts into Bond funds is enormous. Even AAII asset allocation now sees its members devoting 25% of their assets into Bond funds. If you are wondering why the treasury auctions are going well, look no further than Bond funds. Yields remain at lows due to the influx of cash flowing into Bond funds as investors seek shelter from the cash and equities. Since we love calling bubbles, it is no secret that eventually this cash will begin to find its way into higher yielding assets. It could take some time, but at some point a 3% yield before FEEs will not satisfy investors for very long.
It is best to tune out the market noise including CNBC and focus on the price and volume action of the stock market. Right now the NASDAQ and SP-500 have 3 distribution days and we have yet to see stocks sell off hard on volume from Friday’s move. Remember to always cut your losses short and keep a positive attitude!
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