Psst! Look Under The Hood….And Run!

by northmantrader

$DJIA 27,000, $SPX 3,000, so the headlines and the president celebrate. Don’t let the headlines distract you, look under the hood. This rally is technically weak, it’s as weak as the reason for it: The Fed.

From my CNN Business article this morning:

“Lowering interest rates is rooted in desperation. Watch out, investors. While rate cuts, low interest rates and central bank intervention have been kind to asset prices over the past 10 years, a rate cut this month may eventually be bad news”…..The facts reveal an uncomfortable truth: Cheap money has not resulted in sustained new growth, but it has produced an unprecedented explosion in debt. And the Fed’s solution is now to offer more cheap money by cutting rates again.”

So while Powell once again pleased markets on the surface resulting in new highs headlines, the details beneath lay bare a rally that is weak, weak, weak.

Don’t take my word for it. Here are some sample data charts that make the point better than I ever could.

Nasdaq New High/New Lows:

The entire year has been pitiful on the strength front compared to 2019, but this latest run today is the weakest yet. There’s no notable expansion in strength. And note $NDX is inside another rising wedge yet again.

What about the cumulative advance/decline picture?

Weak, weak, weak. New highs on $NDX, but a lower high on the cumulative advance/decline mix, a negative divergence.

$BPNDX is actually red on today’s new highs and is also showing a negative divergence:

And that’s just the tech sector leading with weakness from within. Never mind the usual suspects.

Banks:

Small caps:

Transports:

But for now the headline indices keep chugging higher inside the Sell Zone. Just remember: Nobody will ring a bell. But these charts above tell a tale, a tale that says: Caution. Weak.

 

 

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