Let’s start today by talking about the mega cap tech stock. I’ve argued this week that it was time for them to sit back a bit and time for the small caps — or the “others” — to get a chance to play. We’ve had that for the past few days, but let’s get back to growth stocks.
It is clear to see the direct relationship in February and March, when interest rates rose (relatively higher) and the Invesco (QQQ) (which I will use as a measure of growth stocks) sold. But I want to focus on what happened in May. By mid-May, everyone was convinced that rates were going up. Two percent was a common goal. Look at the blue box on the 10-year yield graph. No one cared that rates weren’t even above 1.7% when they hit 1.75% in March. New. The rates went up, they said.
And that meant, as the story went, you just couldn’t own growth stocks. Growth stocks didn’t like higher interest rates, they didn’t like inflation. But look at the QQQs, because they were the inverse of prices, weren’t they? They did not make lower lows (blue box). There were plenty of days when bonds fell (yields up) and technology stocks didn’t care. Sentiment was so negative about growth that the National Association of Active Investment Managers (NAAIM) cut their exposure to 44.
That in turn led to the romp we had in June. July was tougher. But it is in July that complacency has fully returned when it comes to these stocks. So think about it. Facebook (FB) was disappointed and people had a laundry list of excuses as to why it didn’t really matter. Shrugs our shoulders.
Apple (AAPL) didn’t give great guidance, but hey, it’s Apple, they always sandbag. No problem. This is a far cry from the hysteria in May, when Apple threatened to break $120 and moved close to the 200-day moving average.
This Thursday evening we see Amazon (AMZN) disappoint. I’ve now heard excuse after excuse about Amazon’s quarter. I see all these reactions as complacency. It took them three months to hate growth/tech stocks in the spring and they didn’t warm up to tech/grow again until July, so how can they turn against it so quickly?
But go back to that interest rate chart. It’s been almost two weeks since rates were this low. I think it will take longer before we know for sure if that was the low rates. (I think eventually it will be the area prices where they bottomed out, just like March was the area where they topped out.) What I’m starting to see is there are days when bonds go up (rates down) and the “others” don’t care. Instead of calling them the others, let’s call them the reopened stocks. Perhaps these stocks will start to form over the coming weeks, as growth stocks did in May.
The latitude was good on Thursday; it wasn’t great. But it was enough to stop the McClellan Summation Index from falling for the first time in two months. You can’t even close your eyes and see it, but it happened. Even the number of stocks hitting new highs on the New York Stock Exchange rose to 200. The fly in the ointment was sentiment, as the put/call ratio fell to 0.68 for its lowest level since July 1.
The New York Stock Exchange’s Overbought/Oversold Oscillator even hit zero.
With Friday being the last day of the month and Monday being the first day of the new month, it’s a toss for me, but the oscillator will be overbought again early next week. But I’m going to take a look at those reopened stocks to see if they can improve in the coming weeks.
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