Date: October 3, 2018

Haves & Have Nots

As you know my theme over the past month has been about this “split” market developing and persisting. By “split”, I am referring to the number of stocks making new highs as well as new lows. The numbers keep climbing. Price hasn’t wavered although recently, the masses and media caught on to the fact that the Russell 2000 has been under pressure while the Dow Industrials have soared higher. That’s unhealthy behavior.

What you see above is pretty egregious. Almost anyone can now spot that. As such, I would expect that trend to move in the other direction sooner than later to punish the late adopters. And even if that happens, it is unlikely to change the internal weakness in the stock market.

The Dow is leading. The S&P 500 and NASDAQ 100 are close behind. The S&P 400 and Russell 2000 look awful. And now, my four key sectors are starting to show some wear.

While the window of opportunity for a pullback remains open for at least another few weeks, there remains that scenario where I will be wrong. If that’s the case I would expect no change in the weak underlying structure but price in the “haves” would somewhat melt up like we saw in late 1999 and early 2000.

For those wondering about gold, it remains in bottoming formation with the evidence still pointing higher. While crude oil has really been strong, I don’t think it peaks just yet, but I also don’t think the rally lasts a whole lot longer.


Paul Schatz, President, Heritage Capital