A notable change in market behavior has been evidenced for two weeks, in a clearer way than the ongoing rotational action that preceded for months.
Last week we saw a couple days during which the Senior Indexes were up a lot; or at least firmed substantially, while FANG and other presumed leaders more of a momentum nature (and typically involved directly or indirectly in a technology field, or one that requires advanced technology to deliver their products) were failing to participate, and even declining quite visibly.
That happened again on Monday, really from the get-go, with the DJIA and S&P up, while Nasdaq, QQQ, NDX and SOX were down and didn’t even rebound much when the intraday recovery efforts were mounted. Some say this means little; I think it’s a clear change in market behavior that matters.
In addition, all of this conformed to my Saturday forecast to be ‘wary’ of a market that gapped-up on Monday (actually I projected that is exactly what it would do); followed by a sell-off, rebound, and a faltering.
What we got was even more significant because it was far more than merely a ‘buy-the-rumor / sell-the-news’ response to passage of the Senate version of the Tax Bill (now in reconciliation with the House version; and we suspect a compromise version will be adopted; though it would be unusual if House members didn’t have their two cents again; and try to change-it-up a bit).
In any event; what happened Monday was very much aligned with forecasts but also telegraphs more potential dangers that lie ahead. That’s surely not an assurance of significant imminent decline; but forewarns about the actual activity (and perhaps thinking of money managers who are not quite merely behaving passively, as many of the new-generation of investors ‘believes’.
We’re not interested in the dialogue about passive versus active investing in this case. We’ve already forewarned that ‘passive investing’ is a marketing approach that made it easier for managers to pitch consistent investing and easier on those who simply would buy baskets of stocks. Part of a problem I anticipate can be seen already; where stocks in a ‘basket’ go up or town in lockstep; which reduces the ability to separate the really good companies at given price levels from the mediocre ones.
