A holiday shortened light volume week
ended with the Russell 2000 at an all-time-high on a closing basis.
Within one week I've noted a sentiment change from a market
undergoing a counter-trend bounce with a high probability of failure
to a market with small-caps outperforming but the volume is weak so
should this rally be trusted. In some respects, hasn't this been the
market of the past four years since the March 2009 bottom? There
just seems to be a rush to the exits mentality of which I've noted
I've suffered a number of times as well which thus far has been
proven unwarranted.
Two things I found noteworthy this
weekend has been the relationship between the Russell and the SPX.
The market started this correction on May 27th but the
Russell had begun to show outperformance to the SPX well before that
which has continued to this day. Additionally while the $BPSPX and
$BPNYA are in Bear Confirmed on their respective point and figure
charts, the $BPCOMPQ is currently in Bull Confirmed. From my point
of view these are the indices that matter most and both are
indicating stregnth.
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| RUT:SPX |
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| $BPCOMPQ PnF |
Two questions I asked myself this
weekend are: How are the stocks that have the dollar volume to suck
the wind out of the market's sails and drag down the indices
behaving? Are they holding up well and trending, ranging, and
breaking to new highs, or are they looking top heavy and showing
decaying price patterns? The second question is how are IPOs and
small caps performing. In going through the charts and the
all-time-high list a number of institutional darlings are at their
peak price, such as AMZN, CEEE, and WFM. Additionally there are a
number of IPOS that are holding up well and are near or making fresh
all-time-highs, such as BLOX, ANGI, AMBA, TSLA, NOW, DWRE, YY, YELP
and SPLK. Some of these names are despised stocks that are heavily
shorted and considered very richly valued and overpriced, but this
has yet to be confirmed by the market so as long as this is the case
I view the current state as positive because the story stocks are
doing what they do during bullish phases which is punishing early
shorts until they capitulate.
Unless and until there is evidence of
selling either indicated by breadth or crowded stocks being exited en
mass and IPOs starting to crumble, my current view is that the story
the market is telling is a happy tale. Let the stocks explain how
the headlines should be interpreted.
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