Monday, July 20, 2015

The Indices Are Showing A Tremendous Amount Of Resiliency Which Means...

Over the weekend quite a few people pointed out some of the negative divergences that they are seeing.  As usual those who point them out are perceived to be short the market, under invested, perma bear, etc....This might be the case or may not be the case, you never know with twitter, but divergences are divergences and what you do with the information is more important.

I'm in the camp that 99% of negative divergences in a bull market should be ignored and or be left to those who are nimble in the short term.  For the rest (majority) one should continue to wear the rose colored glasses until the music stops.

The chart underneath is the QQEW (equal weight to all stocks nasdaq 100 stocks) versus QQQ which gives a higher weight to AAPL (15.41%), MSFT (7.19%), GOOG (3.57%), AMZN (3.48%), FB (3.46%).  We all know that Apple, Google, Facebook, and Amazon had tremendous moves in the last 5 days and that in itself explains the huge spread that has taken place between the QQEW and QQQ in the last 5 days. Some will view the two charts underneath and tell you that this is a huge negative divergence, the opposite side will tell you how resilient the indices are and that only price pays, etc...

The same can be said with the SPY and the equal weight SPY which is RSP;

With the charts underneath you can also take the negative divergence side of the debate or the resiliency of the indices debate.

Here we have the Russell 2000 compared to the amount of stocks up 25% or more for the quarter and down 25% or more for the quarter.  Interesting enough we almost have double the amount of stocks down 25% or more for quarter than we do up, shows you the resiliency of the indices or the huge divergence.  The side you take normally is dictated or heavily influenced by your positions.  If you heavily invested you will probably take the resilient side and vice versa.

When you take the same stats and compare them to the SP500 the resiliency and divergence is even greater because the SP500 hit an all time high today.

Below you can see both the resiliency and divergence of the SP500  when you compared the average of all SP500 stocks above their 3,5, and 10 day moving average.  While the SP500 hit an all time high today the average of all SP500 stocks above their 3,5, and 10 day moving average actually ticked down.

I can probably show you 5 more charts that will show you the resiliency / negative divergence that we are seeing now.  At the end of the day what you do with the information is more important than what you think of the information.

As for me, just by looking at the charts and the stats of the SP500 and QQQ it has not been wise to chase INDEX highs (individual stocks are a different story), the money has been made buying the dips when all those who preached all the positives when the market prints highs become negative after multiple down days in a row.

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