Coming off of last week, this is a big theme.
Here’s Stan Weinstein’s Global Trend Alert:
Even though the Dow closed on Friday (1/21) at yet another new bull market high, we most definitely don’t like the short term “feel” of this tape. However, before going further – don’t worry, we’re not turning negative on the market’s longer term outlook, as we still view that as being bullish (and, in a minute, we’ll go into detail, and show you why we haven’t changed our mind about that trend). However, as far as the near term action is concerned, all that we’ve been warning you about is now falling into place. First of all, this latest advance is extremely selective and, in addition, as we said a few weeks ago was likely to happen, many of the big winners of the fourth quarter are now correcting sharply. And, although it’s not obvious by looking at the Dow, there’s already an “invisible correction” taking place in plenty of the former leaders. A perfect example of what’s occurring was seen on Friday (1/21), when the Dow rallied to that new high, but the S&P 500 Index (SPX), the NASDAQ Composite Index (COMP), and the Russell 2000 Index (RUT) were all down on the day (with the COMP now down 77 points, while the RUT is down 35 points in just the past few days). This action brings to mind a phrase that was often used in the 1960’s-70’s (but which we never hear anymore), which was that “stocks are being distributed under the guise of strength in the Dow.” In addition the “rotation” that we’ve been warning you to be alert to is also obviously making itself felt, so while we most definitely don’t want you to turn negative longer term, we continue to feel that, tactically, you should be less net long than you were a week ago.
This chart of the Dow vs. the Russell 2000 (small caps) is getting a lot of attention.
Meanwhile, several of the late-2010 bubble stocks — the Chinese internet names, the rare earths, Netflix, etc. — have been getting hit pretty hard. So for the week ahead, this is the story to watch.