Once Again, This Rally Lacks Participation

Posted by jbrumley on June 23, 2017 1:04 PM

Think the market's back in its gung-ho mode it was in just a few weeks ago? Think again. As has been the case for a little too long now, just a very few stocks are doing all of the market's work for it, while most stocks continue to drift listlessly. If this rally is ever going to get off the ground in a meaningful way, it's going to need more breadth and depth than it's currently boasting.

The performance-comparison chart of all the major sectors below tells the story. Healthcare -- driven mostly by biopharma -- is the week's big winner, but technology stocks have had a fair showing as well. Everything else? It's down for the week... at least when using the major sector ETFs as a proxy. Though we'd generally expect (and even want) a marketwide rally to be led by tech and healthcare, they should at least be leading. All other sectors are actually drifting in the opposite direction.


If you're more of a numbers person, the table below illustrates the same idea. That is, healthcare and technology stocks had a pretty good week, but not much else did.


And it's not even as of the leading sectors were all that impressive overall. As has been the case for a while, only a handful of stocks are making meaningful forward progress.

Nowhere is this more alarmingly evident than within the technology sector, where Amazon (AMZN), Facebook (FB), Netflix (NFLX) and Alphabet (GOOGL) have all partially recovered steep losses from a week ago -- losses sector as a whole hasn't recovered as much -- and where Microsoft (MSFT) and Apple (AAPL) have at least stopped their bleeding.  Alphabet, Facebook and the rest are fine companies and make up more than their fair share of the market's total market cap. They can't keep the overall market moving higher indefinitely though. We're reaching a point where all the people who want into those names are already in those names.


To that end, even more so than the non-tech, non-NASDAQ indices, we're seeing a clear lack of buying interest.

The chart of the NASDAQ Composite below includes the exchange's up volume and down volume (daily), as well as the number of advancers and decliners (daily). Though it's not been decidedly bearish, the bullish volume surge from earlier in the week hasn't seen any follow-through, and the number of advancers  has remained lackluster.


We've not seen growing bearish volume or a growing number of daily decliners either, which is good in the sense that it doesn't spell doom. It's anything but the ingredients for a meaningful, prolonged rally.

Yet, the rally continues to march on, even at a snail's pace.

The advice "don't fight the tape" is always sound advice. The bulls may be moving higher on a wobbly foundation, but until the bears muster enough guts to upset the apple cart -- and they haven't done so yet -- that doesn't mean stocks can't keep on walking higher. Just know that a wobbly foundation makes it all too easy for stocks to turn tail, and fast.