Oct 6 HeadlineCharts – Saturday’s Random Thoughts

The Medium-Term Trend

We have a medium-term downtrend. It was a long time coming.

It felt like a really bad week, but then Saturday morning browsing the charts, there actually hasn’t been a lot of damage.

However, the 52-week new highs/ new lows, went net negative, and that is usually a sign of significant weakness that exceeds the average short-term decline.

Random Thoughts

There is a lot to discuss about stocks right now, but here are some random thoughts.

We are in the period before elections when the market often is volatile. Personally, I think that is an overlooked factor in all the discussion I have read about this market sell off.

Because the seasonal November-December period is traditionally so strong for stocks, my guess is that we get a rally regardless of the election results. It is probably best to focus our market analysis on what happens after the new year?

Higher rates are definitely a negative too, and, again in my opinion, higher rates are primarily responsible for the weakness in the FANG stocks.

I am one of those people who think stocks have reached such extraordinary heights because rates have been kept so low. A lot of people say this, but do they really think it? Or have they forgotten it after so much time has past?

I hear people saying that such a strong economy should be able to handle tiny rate increases. It is a good argument, but maybe the market is reacting to direction of rates more than the actual increase?

And, side note, I worry a lot about the huge federal deficits. Tiny rate increases mean huge increases in interest payments on federal debt. I just don’t how to factor the federal debt into an assessment of stocks.

Another issue. The market has climbed and climbed this year on very weak participation, and the stocks that got us to these heights need a break.

The weak market participation has perplexed me and undermined my investing, but then again my bias was to be negative towards stocks and I followed my bias instead of following the charts. My bad.

The weak participation is still an issue, but I have to follow stock prices first and remind myself that market internals are secondary.

Below are the summation indexes. The rule is to stay cautious while they register under the zero-level, and then get optimistic on stock prices again when the indexes spring back above zero.