The market had two solid increases after Monday’s horrible selloff. After today’s “surprise” uptick in jobless claims, the Dow is flat and the Russell 2000 is off again. 1.4%. That puts additional pressure on small cap stocks, and reminds us of the importance of broader momentum in the market. People ask how market momentum is still negative when the stock market has increased the way it has over the last two days. The key here is that most investors are overly focused on just the S&P 500, the Dow Jones, and the Nasdaq. These are not the stock markets. These are indices.
And all three of them are heavily influenced by mega-cap and large-cap stocks that have very significant weight on their averages. In fact, Apple is a major component of all three of these indices. Apple represents more than 6% of the weight on the S&P 500 and more than 11% of the Nasdaq 100.
Apple has been on an incredible ride over the last month. Shares recently topped out at $150. And as I explained, the stock touched overbought conditions on three critical momentum indicators. Still, there are 500 stocks on the S&P 500. And not all of them could increase by more than 20% in less than two months. Looking down the ladder, we see a lot of companies struggling around earnings.
When we expand the universe to the more than 7,700 stocks that trade publicly, we can see a huge decline across the board. At 11:15 am on Thursday, 2,500 stocks were on the rise. That’s just 30.4% of the addressable stocks trading on the New York Stock Exchange, the Nasdaq, and the AMEX. That means that 63.9% were trading lower (or 5,258 stocks). Again, market momentum is still negative even if it doesn’t look like it on the surface.
Sectors Are Breaking Down
If we look at the markets today, everything looks like it’s stabilizing right? Well, that’s an incorrect assessment as well. Just look at the number of sectors that are trading over 1% in the last 24 hours. There are only five.
- Railroads – up more than 1.5% after Union Pacific’s strong earnings report.
- Software Infrastructure – up 1.1%
- Insurance Brokers – Up 1.1% due to cheaper valuations
- Consumer Electronics – Up 1.1% for reasons I don’t understand
- Internet Retail – Up 1%
Now, let’s look at industries that are off by more than 1% on Thursday morning. There are so many, it would take me 10 minutes to transcribe them. Have a look.
We have been experiencing a stealth selloff of lower highs and lower lows. Tomorrow, I’ll explain to you why Scott Minerd at Guggenheim Partners (and my favorite voice in the markets) is projecting a 15% selloff by the time the World Series starts. Be careful out there. Cash is again your friend on this Thursday afternoon.