Conspicuous Weakness In Market Internals A Bad Omen For Stocks?

At present, market internals look horrendous. Nearly one-quarter of securities trading on the NYSE have hit 52-week lows. In fact, the New York Stock Exchange High-Low Index has not pointed to market breadth this troublesome since the world’s central banks (e.g., Bank of Japan, European Central Bank, etc.) injected trillions of quantitative easing stimulus into the global financial system nearly three years ago.

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Back then, the U.S. Fed backed off its four rate hike plan for 2016 by telegraphing an intention for a single year-end hike. The markets rejoiced. Today, the U.S. Fed is decidedly in favor of regular rate hikes and shows little indication of capitulating to critics.

Back then, the world’s central banks were willing to create trillions of currency credits to push bond yields lower, even negative. Today? None of the world’s influential central banks are discussing emergency stimulus measures.

Granted, there may be little evidence of a U.S.-based recession in sight. Nevertheless, decreasing liquidity, tighter credit and asset price depreciation themselves can bring about recessionary pressure.

Not sure about that? Then you may have a short memory.

bursting of the technology stock bubble preceded the 2001 economic downturn. It came about in a Fed tightening cycle. Meanwhile, the popping of the residential housing balloon preceded the Great Recession. It occurred after the Fed kept rates too low for too long, before slowly hiking rates 17 times to a level that it considered “neutral.”

So here we are again. Asset prices are falling or flat-lining at a time when the overwhelming majority of economists and Fed committee members see nothing but blue skies for years to come.

Me? I see speculative behavior in clients that remind me of when I co-hosted a national talk radio show in 1999. Then, callers peppered me with inquiries about the New Economy’s dot-com revolution. What did I think about Cisco (CSCO), JDS Uniphase (JDSU) and Sun Microsystems (SUNW)? Now clients are interested in cryptocurrencies like Bitcoin and cannibis stocks like Tilray (TLRY).

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ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser ...

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