After experiencing a strong, gut wrenching break back in January/February, the stock market refused to collapse. So far the Dow Jones Industrial Average and the NYSE Composite Index have still not moved to new highs but they have not collapsed either. The Dow Utility Index reached an all-time high in November 2017 and has not exceeded it.
On the other hand the Dow Transports (DTA), S&P 500 (SPX), Nasdaq Composite Index (COMPX) and the Russell 2000 (RUT) all moved to new highs. It continues to look and act like a fractured market. All-time highs were made on these indexes in late August. We are watching to see if these hold. The DTA did close Friday at a new all-time high.
Indeed, when the top was made in January, it appeared the market completed a 5 wave move up from the March 2009 low. That Elliott Wave count still holds for the DJIA and the NYA. The other indices that pushed slightly higher are now best counted as being in their 5th and final wave up.
Some interesting market facts:
- The CAPE ratio is now higher than the 1929 peak or the 2007 peak. The only period in history, higher than where we are today, is the 1998 – 2000 peak in stock market. [That peak was the end of Primary Wave 3 of Cycle Wave V of Supercycle III.]
- All the largest global stock markets are down for the year with only the UK’s FTSE 100 and France’s CAC 40 briefly pushing above the January high. China’s Shanghai Composite Index is at multi-year lows.
- According to an August 29th article, Bloomberg says that 48% of the performance of the SPX is accounted for by the five FAANG stocks…Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Alphabet (GOOGL). That is what I call narrow leadership.
- And so far, of that fab five, two took huge hits this year. FB dropped 23.8% from high to low over 3 trading days in July. NFLX dropped 18% over 3 days also in July. And not to be outdone by FAANG stocks, Twitter (TWTR) dropped 30% in 3 trading days, also in July. Harsh treatment for some Wall Street darling stocks. Sign of things to come?
Frustrations
Recently several people told me they are frustrated that the market keeps going up when it seems that it should sell off or break down hard. No doubt it can be very frustrating to watch a market keep pushing up irrationally or when it is so completely overvalued.
The market is going to do what the market is going to do. Price and risk management are the most important things. You need to let the market tell you that it is indeed breaking down. Remember that famous line from the Revolutionary War, ‘don’t shoot until you see the whites of their eyes.’ The same could be said for trading or investing in the stock market.
So when I say trade what’s in front of you. What do I mean? I mean react and pay attention to what the chart and price are telling you. Always have a plan and work your plan. Know where you will exit a position and stick to it, no matter what.