I have seen trading ranges but this is amazing. This is trading-range city.
A look at any chart of US stocks will inform even the total novice that the US markets are going nowhere fast. While we have been seeing a bit of rally of late (August was up 1.5%), the charts make this all look just like a choppy ride on the ocean and all the bouncing around has got us nowhere.
Some Stats:
On January 1st the S&P 500 started out at 1,449. That constitutes the high for this year so far.
On Jan 22nd it hit 1,310
On March 3rd it hit 1,335
June 23rd it hit 1,314
August 25th it hit 1,270
This is a trading range of 4 1/2 %.
It all amounts to a lot of smoke but no heat.
I won’t go into all the numbers, but this chart of the S&P
500 says it all. Almost all the markets look this way with
one significant difference. Small companies are doing much, much better. Ironically, this is exactly
the opposite of what most pundits predicted.
Look at this chart. This is the Russell 2000. The most commonly used benchmark for 
small cap stocks. It’s essentially up in the same period of time and flat for the year versus
-11% for the S&P 500.
This was not supposed to happen. Think about it. If the dollar is weak, the kinds of companies you would expect to do well are those that sell overseas. A cheap dollar makes our goods more attractive to foreigners.
If you are selling overseas and your goods are cheaper, your sales go up. Most small companies sell locally so they don’t benefit from a cheaper dollar. Small caps should suffer as the US economy slows. You would think therefore, that large companies that have international sales will experience much higher sales and bigger earnings which of course is good. Small companies with domestic sales would only see earnings slow, and this is bad.
But as with all things in the market, things don’t always do what you expect them to do. Year-to-date, an 11% difference in return is a huge differential and worth noting.
Finally, on this subject I added the chart 
for international stocks which are doing poorly. This is expected because their strong currency makes them less competitive. These are down on average -18% in 2008.
So what is the short-term outlook on the stock market
these days? What is the prognosis? So far, not very good.
While I am impressed that the general market continues
to stay above its recent lows, and some floor traders
on the NY stock exchange are seeing a slightly better tone,
technically there really is no buying conviction when the market rises. Lately, holidays and summer and all, the market has been increasing on light volume—never a good sign—and very recently, the markets’ rise has been more a function of sellers staying away, rather than committed buyers entering the market. I am watching these signs very closely and will report them here as soon as I see any significant change.
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I have seen trading ranges but this is amazing. This is trading-range city.
A look at any chart of US stocks will inform even the total novice that the US markets are going nowhere fast. While we have been seeing a bit of rally of late (August was up 1.5%), the charts make this all look just like a choppy ride on the ocean and all the bouncing around has got us nowhere.
Some Stats:
On January 1st the S&P 500 started out at 1,449. That constitutes the high for this year so far.
On Jan 22nd it hit 1,310
On March 3rd it hit 1,335
June 23rd it hit 1,314
August 25th it hit 1,270
This is a trading range of 4 1/2 %.
It all amounts to a lot of smoke but no heat.
I won’t go into all the numbers, but this chart of the S&P
500 says it all. Almost all the markets look this way with
one significant difference. Small companies are doing much, much better. Ironically, this is exactly
the opposite of what most pundits predicted.
Look at this chart. This is the Russell 2000. The most commonly used benchmark for
small cap stocks. It’s essentially up in the same period of time and flat for the year versus
-11% for the S&P 500.
This was not supposed to happen. Think about it. If the dollar is weak, the kinds of companies you would expect to do well are those that sell overseas. A cheap dollar makes our goods more attractive to foreigners.
If you are selling overseas and your goods are cheaper, your sales go up. Most small companies sell locally so they don’t benefit from a cheaper dollar. Small caps should suffer as the US economy slows. You would think therefore, that large companies that have international sales will experience much higher sales and bigger earnings which of course is good. Small companies with domestic sales would only see earnings slow, and this is bad.
But as with all things in the market, things don’t always do what you expect them to do. Year-to-date, an 11% difference in return is a huge differential and worth noting.
Finally, on this subject I added the chart
for international stocks which are doing poorly. This is expected because their strong currency makes them less competitive. These are down on average -18% in 2008.
So what is the short-term outlook on the stock market
these days? What is the prognosis? So far, not very good.
While I am impressed that the general market continues
to stay above its recent lows, and some floor traders
on the NY stock exchange are seeing a slightly better tone,
technically there really is no buying conviction when the market rises. Lately, holidays and summer and all, the market has been increasing on light volume—never a good sign—and very recently, the markets’ rise has been more a function of sellers staying away, rather than committed buyers entering the market. I am watching these signs very closely and will report them here as soon as I see any significant change.
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Posted in On The Money! Commentary | Tags: finance, investing, Life, money, News