Buzz on the Street: Fed Says No Taper, More Candy
A look back at the happenings on Wall Street this week, as seen by Minyanville's Buzz & Banter.
All day and every day, some of the stock market's best and brightest traders and money managers share their ideas, insights, and analysis in real-time on Minyanville's Buzz & Banter.
Here is a small sampling of this week's activity in the Buzz.
Monday, October 28, 2013
It's All Relative, and It's All Relatively Extended
I've written here previously about keeping an eye on the relationship among three indexes: S&P 500 (INDEXSP:.INX), Dow Industrials, (INDEXDJX:.DJI) ,and Nasdaq 100 (INDEXNASDAQ:NDX).
Although similar to each other in many ways, they are distinctive in the type of stocks comprising them.
Those different inputs don’t produce such different outputs while markets are trending. But those differences can quickly become glaring when the trend is preparing to reverse.
They’re doing it now. Before I explain how, let’s understand what makes the indexes relevant to this exercise.
The Dow has 30 components. (It’s actually an average, not an index, but that’s irrelevant here.) The companies are the most widely followed by analysts, making surprises rare. Their stocks are the most liquid, making them the most widely held by institutions. Dividends help, too. Some of the components may have growth stories working, but consistency is the norm. Managers don’t buy Dow stocks to outperform the market -- they generally perform in-line with the broader market because the Dow generally is the broader market.
Contrast that with the NDX. A handful of its components share the broad institutional holding. They and others may be widely followed. But dividends are rare among NDX stocks, while growth stories are the norm. And growth is often volatile. Managers buy NDX stocks to when trying to outperform their peers.
Basically, NDX doesn’t attract the safest money. That’s the Dow, all the more so when a rally is peaking. NDX outperforms the Dow during rallies. Eventually, they may behave similarly — exceeding prior highs, hesitating at similar resistance, pulling back to similar support — but the outperformance usually ends and the rally resumes.
Then there are times like these…
Notice in the accompanying charts how the Dow and NDX are negotiating probes above their prior highs (circled red). NDX (middle chart) has probed higher, but it is currently trying to probe higher again. Meanwhile the Dow (right chart) has trended upward almost relentlessly.
The prior high wasn’t exceeded without there being pushback. Those reactions down are also labeled (circled green). NDX had quite the struggle, while the Dow barely blinked. For comparison, the SPX (left chart) is not behaving so aggressively in either direction.
So, we’re starting to see signs of speculative sentiment waning. That hasn’t been a sell signal — in fact, the Dow’s outperformance tells us the speculation has limited its exposure, but it’s still exposed. That’s not a sell signal, either.
But it’s a start. And when the turn comes, it can come quickly. The turn can end quickly, too, so this can be worked out by a simple corrective pullback. In case that pullback were to develop, then the inverse comparisons will be made to identify its end.
I discussed the indicator in greater detail during this weekend’s Saturday Strategy Session. You can watch a replay here.
Click to enlarge
RGR Looks Buyable
A 10-minute Sturm, Ruger & Co. (NYSE:RGR) with a 3-day lookback shows a little breakout.
RGR looks buyable for a trade with a minimum projection to a backtest of its 20 DMA or an extension to 67 and Gap window in the more bullish retrace case.
Click to enlarge
Bullet Over Broadway
With 45 sessions left in 2013, the Dow is up 19%, the S&P is up 24%, and the NASDAQ (INDEXNASDAQ:.IXIC) is up 31%; how do you spell performance anxiety? N-O-W
Market breadth is balanced, the dollar is marginally higher and commodities and stocks are both mixed. This is considered 'basing' above support (it would be 'churning' under resistance) at S&P 1730 and NDX 3255.
There is chatter that Thursday -- Halloween -- is year-end for mutual funds (and other select funds) and that might reduce the upward thrust (as funds no longer have to defend positions). That remains to be seen but it should be on your radar.
The banks are a bit slinky this morning (it's all relative), as are most of the high-beta plays, with the exception of Google (NASDAQ:GOOG). As they've led the tape higher, we should keep them on our radar, particularly as the day drags on.
As always, I hope this finds you well.
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