August 2019 Monthly View

There are multiple ways to take the temperature of stocks and assess whether they are healthy, suffering a slight cold, sickly, or feverishly unwell.  Given the usual caveats regarding indices and how they tend to lag the underlying vehicles when stocks decline from peaks and rise from bottoms, there are still ways to use them as a thermometer.

As someone who focuses mostly on stocks across a 3 and 6 month time horizon, where the indices are in relation to a 6 month average is important information to me.  As denoted in the following NASDAQ chart, serious corrections in stocks will frequently make a dent on the index over this time frame.

COMPQ 6-Month

Addressing the SPY, a similar pattern emerges.

SPY 6-Month

As of now, the basket of stocks that compose the COMPQ and SPY are behaving in tandem and not visible distressed as of the end of August.  However, the basket of stocks that compost the NYSE and IWM are visibly in tandem with each other and in opposite direction overall when viewed against the COMPQ and SPY.

NYSE 6-Month

What can be visibly and empirically assessed when looking at the NYSE is that during serious corrections the 6 month average will be in decline with multiple closes below.  That going back to 2018 there has not been a new high made by this basket of stocks and they have never fully recovered from their most recent significant correction.

The IWM is showing similarities in behavior to the NYSE. 

IWM 6-Month

Unlike the NYSE however, the correction in the underlying basket that compose the IWM continues to weaken as the monthly close is below a declining 6 month and below the 2 year average.

Coming into September what is abundantly clear is that market volatility and price swings have been the norm in August.  Through it all the COMPQ and SPY have pulled in approximately 7% in keeping with statistical averages.  Stocks that compose the IWM and NYSE as a group have struggled and have gone through 12-18 months respectively without a new high.  The underlying weakness as exhibited by the two indices has not spread further into the stocks that compromise the COMPQ and SPY. 

It remains to be seen if the stocks responsible for the bulk of the moves on these indices continue to do so, dumb down to the laggards, transition through rotation, or the laggards catch up, but what can be seen currently is that stocks are not in lock step to the downside overall.  If anything that is reason enough to remain optimistic unless and until the judgment of stocks tells otherwise.