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Thursday, September 20, 2018

Daily update 9/20 Declining number of stocks traded

Dow finally closes at a new high.

Today probably ticked off the option sellers as SPY gapped up and over 291.  Breadth was +64%.  New highs came in at 85 as did new lows.  That is way too many new lows for a strong day like today at new highs.  SPX is above the upper channel line again.  Volume was relatively strong.  The last time SPX broke out of the channel it only rallied two more days before succumbing to gravity.  It will be interesting to see what happens this time.

The futures broke out of the channel overnight and pushed higher during regular hours.  It looks like a break out of a multi week consolidation.  Now we just have to see if it sticks.

The green count finally crossed 50.  Still below overbought levels should the market want to continue its run.

Overnight a Chinese official said they would be lowering import tariffs on most of their major trading partners in Oct.  I could not find any other details.  I believe the market looked at that as easing trade tensions.  Without details we can't really determine that.  I doubt the U.S. will be included.  At the moment the market is looking for reasons to buy and that was all it took to get the bulls going again.  COMPX and R2000 still have a ways to go to make a new high.  On 8/29 when SPX made its last new high those indexes were also making new highs.  There is a slight divergence here.  That only matters if this new high ends up failing.  On the downside the first warning would be a close back below the Aug. high of 2916.  Lets see what the bulls have in mind.

A lot of people talk about the narrowing of the stock market, but they usually are referring to FANG like stocks.  The entire market has been contracting for 20 years.  Here is a look at the number of companies traded up to 2017.

The number of companies traded last year was down 43% from the year 2000.  Meanwhile total capitalization is nearly double that of 2000.  More money in fewer stocks.  That is the very definition of a narrowing market.  The bear market in 2008 plunged much faster then the bear that started in 2000.  I often wondered if part of that wasn't the fact there were a lot less stocks in 2007.  What happens when the next bear market hits and everybody wants to take profits with even fewer stocks now?  I often hear people on TV talking about their clients all nervous and asking about whether we have hit the top.  They play this off as being bullish.  That may be true while the market is rising.  However, it also means there are a lot of people with their fingers on the sell button because they are bound and determined not to ride out another 50% crash.  Doesn't that guarantee another crash is coming?  This is why I am working so hard to try to recognize the top before everybody else does.  I want to alert my family, friends, and blog readers before the herd figures it out.  I expect a sudden rush to the exit at some point.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.