As sent to BNN Market Call August 6, 2015
The Markets – Too Many Investors on One Side of the Ship
An Unstable Ship: As investors chase fewer and fewer stocks ever higher the technical analyst can see the advance / decline line and the new cumulative new 52-week HI / LOW line failing or not confirming the advance of the broad stock indices.
Thinning Leadership: During the early stages of a bull market all market sectors participate (2009-2011) in the recovery from the bear market trough of 2008. The result is a high degree of sector commonality and broad leadership. As the current bull ages – (the later stages of a bull market) – investors tend to embrace the current “big thing” which currently is the hot – health care and consumer space. The result is we currently have the Toronto and U.S. Health Care, Consumer Staples and Consumer Discretionary sectors trading at all time highs and the Toronto and U.S. Mining, Materials and Energy sectors trading at or near multi-year lows.
They Don’t Usually Ring a Warning Bell: Recent investors in the crowded spaces of the health care and consumer sectors tend to be weak holders and can stampede out of a sector when alarmed by any injury to one of the sector leaders. The current and alarming drop of Apple Inc. below its 200 day moving average has the financial media buzzing and for good reason. Apple is basically a consumer related company and has only violated the 200 day only three times since mid 2003.
The 200-day moving average rule:
A long term up trend is in place if the price is above the 200-day MA – and the 200-day is pointed upward. A long term down trend is in place if the price is below the 200-day MA – and the 200-day is pointed downward
Today our chart is a weekly of the SMH displaying the mid July 2015 downward break of the 200 day (40-week) moving average. The SMH bottomed November 2008 about 4-months ahead of the broader stock indices.