Investors have rarely been this giddy about the stock market.
— Wall Street Journal, Tuesday
On Tuesday those ultra bullish investors got a 600 plus point drop in the Industrials and a 3% drop in tech heavy NASD 100 NDX. Major indexes have trended lower all week. Today (Friday) the NDX had dropped another 359 points or 1.9%.
This column has warned of an impending top and seasonal weakness for some time, it is here now. But is this just a top or a larger top of significance? I think the latter.
Manias take many forms. The positive social mood which pushed stocks to new highs is evidence in the prices of high-powered and ‘collectible’ cars as well as, yes, CPA firms! In the boom days of the late 1970s, state-wide and national CPA firms went on a buying spree of Permian Basin CPA firms. Big checks were dangled to local owners. They would eventually realize they were now employees not owners. That reality struck home in the oil price collapse of 1986. Those same new employees became owners again having to buy back their own firm. San Antonio is not the cyclical economy of the Permian Basin. But with California firms moving here, private equity and larger CPA firms have been on a buying spree. I don’t expect a Basin type let-down, but I expect the CPA prices match the ultra-bullish attitude of the stock option buyers.
Households are more committed to stocks than ever. In February some 58% of U.S. households owned stocks, a new record high. Retail investors bought 18% of options traded in June. Some 60% of those would expire in one week. This is gambling not investing.
The percent of stocks in bullish formation for different time periods is falling across all indexes. The NYSE daily advance decline line, our most reliable indicator, has turned down. Momentum indicators for the A/D line have also turned down. Google, Microsoft, and (can it be) Nvidia are making new lows for this move today. Tesla is down 5.57% today. The message here is that the Magnificent Seven are no longer powering the tech rally. The trend is down.
This column expects new across the board lows for stock indexes in October and November. Take heed accordingly.
Gold and silver are searching for support after a recent sell-off. Silver fond a low under $28, jumped over $29, and is now filling a gap around $28.50.
What is wrong with crude oil? The column was clearly wrong suggesting higher prices. October crude has dropped 10% the last five days, now trading at $68.15, a new low for the move. Goldman suggests that the weakening Chinese economy is resulting in less oil demand. And there is no shortage of crude with Iran supplying China’s needs. October gasoline hit a new low at $1.89, under $2 in futures trading. This is not the pump price including federal taxes.
Brace for a volatile Fall 2024.
