The contrast between stock prices and the overall economy became even more pronounced last week. Thursday’s report of a 32.9% drop in last quarter’s GDP was accompanied by record closes in the big tech giants as their earnings widely exceeded expectations.
The most obvious stay-at-home stock, Amazon.com (AMZN), was up 5.2% last week, but still was not able to overcome the July 13 high at $3344.29 (see chart). The positive earnings from Apple, Inc. (AAPL) caught most by surprise, myself included, as their temporary store closures had little impact.
Apple stock closed up 14.7% last week and was up 16.5% for the month. It closed at $425.04, which was well above the monthly starc+ band at $381.69. AAPL also moved above its monthly starc+ band in August 2018 (point 1) and also for two months earlier this year (point 2). The monthly MACD-His turned positive in September 2019 (line a), and the MACD is rising strongly, showing no signs of a top.
AAPL makes up just over 12% of the Nasdaq 100 (NDX) so it was not surprising that is was up 4% last week, just a shade better than the 3.9% gain in the Spyder Gold Trust (GLD). For the month, GLD was the big winner, up 10.8%, followed by a 9% monthly gain in the Dow Jones Transportation Average. The S&P 500 rallied 26 points in the last hour on Friday to close up 1.7%, while the Dow Jones Industrial Average was down 0.2% for the week.
The investors surveyed by the American Association of Individual Investors (AAII) do not seem to believe the rally, as last week just 20.2% were bullish. That level was last seen at the early October 2019 lows, and in December 2018 just two weeks before the market made a major low (see arrows).
In contrast to this, the weekly S&P 500 Advance/Decline line has recently exceeded the February high and is performing stronger than prices. This is a sign from the A/D line that the S&P 500 will also make a new high above the February high at 3393.52. As the chart indicates, lows in the Bullish % often correlate with pullback lows in the A/D lines, but that wasn’t the case this time. The Bearish % rose 1.6 points to 48.5%, which is well above the long term historical average of 30.5%.
In contrast, the Citigroup Panic/Euphoria Model recently had its highest reading since 2002. Bank of America Merrill Lynch commented in their mid-July survey of global fund managers that “71% of fund managers still think the stock market is ‘overvalued,’ while a record net 74% of fund managers believe that long U.S. technology stocks is the most ‘crowded trade,’ the highest reading in the survey’s history.”
Despite this, the monthly chart of the Invesco QQQ Trust (QQQ) still looks very strong after closing July at $266, which was well above the monthly starc+ band at $260.34. The upper band is just a bit higher for August at $269.80. The fact that QQQ closed almost 30% above its 20-month exponential moving average (EMA) at $205 is a sign that the market is quite extended.
The monthly Nasdaq 100 A/D line closed at another new high. It has been above its weighted moving average (WMA) since March 2016 (line 1) when QQQ closed at $105.16. The monthly A/D line even remained above its WMA during the decline in the 4th quarter of 2018.
It was a great month for gold, as the Comex gold futures surpassed the 2011 high (line a) at 1923.7. The futures were up 10.3% to close at 1985.9, well above its monthly starc+ band at 1889. The on balance volume (OBV) made a new high last month, and confirmed the price action by surpassing the 2011 high (line b). The Herrick Payoff Index, which uses volume, price, and open interest, has been positive since December 2018 and is well above its rising WMA.
Since June, I have been concerned about the monthly jobs report that will be released on Friday, August 7. The market and most of the economic numbers are still strong, so another weak jobs report may not signal the end of this stock market rally. Nevertheless, as I have been suggesting for the past few weeks one should not be complacent. In my view, taking some profits ahead of the jobs report would be prudent. At some point, the market will need to account for the overall weakness in the economy, if not this month, perhaps in September.
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