For those of you who’ve read other articles that I’ve written, or who have subscribed to my Free Weekly Investment Commentary, you know that I focus much of my attention on fundamental factors and developments, such as significant economic developments and corporate operating results.
However, what you might not know is that I also monitor the daily trading action in financial markets around the globe. That’s because doing so can often give reliable signals as to the future direction of stocks, bonds, commodities and precious metals.
One of the trading factors that I heavily consider is the performance of the market’s “better-performing stocks”, which are often referred to as “market leaders”.
Some examples of market leaders since the beginning of the current bull market (which began on March 9, 2009) are Netflix (NFLX), Apple (AAPL) and Priceline (PCLN). From that day until those stocks recorded their market highs during 2015, NFLX rose by more than 23-fold (2,280%), AAPL appreciated by more than 11-fold (1,020%) and PCLN rose by approximately 19-fold (1,775%).
However, Netflix and Apple have trended lower since peaking during 2015, while Priceline traded in a sideways pattern over the past nine months. In other words, the prior market leaders are no longer leading the overall stock market. Instead, mostly large-cap defensive stocks, such as Proctor & Gamble (PG), Johnson & Johnson (JNJ) and Coca-Cola (KO) have been largely behind the stock market gains over the past 12 months.
That’s a very significant development that should not be overlooked by investors who are just as interested in protecting the value of their financial market portfolios, as in striving to generate gains. Although NFLX, AAPL, and PCLN rebounded a bit over the past two weeks, the trading volume for those stocks were low, indicating at most the natural market participants have little faith in the future direction of these stocks.
Meanwhile, my Stock High-Relative Price-Strength Index, which is derived from the price-performance of 46 leading stocks since the beginning of the current bull market, has failed to break above a key price-resistance level…even though the major stock market indices recently rose to all-time highs.
Separately, data released on July 26th, 2016 by State Street Corporation (a company which provides financial services to thousands of institutional investors around the world) indicates that since December of 2013, those investors became the most defensive with regard to their investment allocations.
And, individual investors continued to withdraw large amounts of money from stock mutual funds over the past five months, indicating that, in the aggregate, those investors remain concerned about the future prospects for stocks.
So, I encourage you to not become overly optimistic about the recent gains in the U.S. stock market, as the trading factors mentioned above suggest that financial market investors should be leery of the market rally that occurred over the past six weeks.
Until next time,
David Frazier is President and Chief Market Strategist of Frazier & Mayer Research, LLC, an independent investment research firm that offers customized research and analytical services to registered investment advisors, hedge funds and high net-worth individual investors. You can check out his latest insights at: www.investorsmonitor.com.