Having just hit record highs after a historically impressive 13-day winning streak, stocks are susceptible to a rebound or, at the very least, consolidation. Beyond direction over the next week or two, the big question is what comes next. The answer to the question will present itself over time. However, in the meantime, we can focus on expansion to help us gain a foothold in the market.
Regarding breadth, consider that despite hitting record highs, only 65% of stocks are above their 20-day moving average, 54% above their 50-day moving average, and 60% above their 200-day moving average. The graph below, courtesy of Charles Schwab, shows that a large majority of stocks broken down by sector are below the most recent monthly, quarterly, or 52-week high. Even in leading sectors, like technology, only 58% of underlying stocks are at 4-week highs. Interestingly, despite oil trading in the mid-$90s, none of the energy sector stocks are trading at recent highs. The broad takeaway is that a few stocks are leading the market higher, while many others are not.
We would like to see an improvement in the magnitude to increase our confidence that the market will continue to move higher in the next few months. When a good majority of stocks in many sectors rise together, it reflects real, widespread bullish belief and real money flows into equities. A narrow rally, like the one we’ve had so far, often follows momentum and sector-specific themes. This type of demand is weak and can be reversed more easily.
What to watch today
Earnings
The economy
Treasury Buybacks: Money Printing or Prudent Cash Management?
We were forwarded the tweet below and asked, “Why is the Treasury printing money??
The quick answer is that they are not printing money. The $15 billion in buybacks consisted entirely of securities maturing within one year. The money to buy the securities will come from the excess cash they have. Additional cash is from previously issued debt securities and tax revenues. What they are really doing is changing their future cash flow. They are likely spreading future principal payments over time and avoiding large, large payments. This exercise of cash management does not result in the printing of money or any change in their outstanding debt. It’s just a smart way for the Treasury to manage its enormous cash inflows and outflows.
Tweet of the day
