Date: August 24, 2020

Everything is Hunky Dory – Apple a Selling Opp

Market action is definitely feeling like 1999/early 2000 when the hot NASDAQ stocks were melting higher right out of the gate every morning. More importantly, there were so many days with horrid market internals and prices just kept going higher. Last Friday may have been the most egregious since the bull market began in March. On the NYSE there was almost two stocks declining for every one stock rallying. That behavior usually occurs on a one percent down day. Instead, the Dow Industrials were up .70% and the S&P 500 hit another all-time high. On the NASDAQ, more than two stocks declined for every one that advanced on Friday. No worries. The NASDAQ and NASDAQ 100 kept soaring to new highs.

Awful behavior like this can exist for days, weeks, month and even longer. It doesn’t have to end because I keep writing about the warning signs. I doubt anyone can stay solvent betting against the bulls for an unlimited amount of time. Some of you may think I am cherry picking the data that suggests all is not well. OK. Let’s go in a different direction. Let’s see how many stocks are making new 52 week lows. With the S&P hitting all-time highs, that number should be low and falling.

Below you can see that something definitely changed over the past few weeks as new lows are growing exponentially although the raw number remains relatively low.

Still think all is hunky dory?

Let’s turn to one of my favorite canaries in the coal mine below, the New York Stock Exchange Advance/Decline Line which measures participation. Just like with the new lows above, something definitely changed a few weeks ago. The S&P 500 in the upper chart has been rallying as you know. The problem is that the NYSE A/D Line below it has been going down. Something ain’t right and all is not well my friends.

To reiterate, conditions like this can persist. The difference maker this time around is the Fed. Never before in history has a Fed created such a tsunami of liquidity in our financial system so quickly and so widespread. Obviously, we can’t ignore this nor underestimate the power of the Fed when they decide to go all in. If history is still a valid guide, we know that this won’t end well, but the timing is going to be more difficult than ever although timing is always the hardest part.

P.S. Perhaps the most high profile stock split in history occurs today as Apple splits 4:1. I think it’s a selling opportunity. I know. I know. People say to NEVER sell Apple. This ones seems easy to me, at least to pare back.


Paul Schatz, President, Heritage Capital