It’s Not About Where or When

This week there will be no regular market letter.  Instead, please find a few thoughts from Frank on the recent action.

It’s not about where or when … it’s about the selling. Sellers, not buyers make lows. The selling is done, not based on the misused term oversold, but when markets are sold out. The percentage of stocks above their 200-day moving average is an indicator with a long history. Over time it has consistently fluctuated between 70% or more at market peaks, to 20% or less at market lows.  Just below 40% earlier this week, it’s hard to call this market sold out. This also seems unlikely based on the lack of a spike in the VIX, which would have indicated a give-up sort of phase. Meanwhile, the S&P is approaching the garden variety correction number of 10%, and the average S&P stock is down 20% – tech stocks of course much more. There was little special in Wednesday’s market numbers, and no follow through Thursday. Still, even bear markets have their counter trend respites.

It’s important to remember stocks are not companies, and what affects stocks often has nothing to do with those companies. We are thinking here of a company like Netflix (890), seemingly doing well and importantly these days, one untouched by the political drama of tariffs.  Yet the stock is off some 15% from its peak and broke the 50-day just this week. Part of the problem is that it’s a weak market, and studies suggest 70-80% of the movement in any stock is a function of the overall market trend. Often more important these days are the ETFs which concentrate on areas like AI, the MAG 7 and in this case FANG stocks. When one of these ETFs is bought or sold, each stock is affected regardless of the company’s merits, good or bad. This was all well and good on the way up, not so good now.

Frank Gretz