So far today, the market is following the pattern I have been writing about – a bit forward a bit less back. With the market at new highs, it is understandable that without a catalyst of some sort, the market will gently ride the momentum of the resurgence from the recent lows, the positive earnings, and the generally favorable economic news.
There is, however, always the possibility that the technicians out there who see problem within the charts might catch fire with the breathless media and, thus, we will have a pull back.
- In the market, we see another rare — and odd — divergence. The S&P 500 is at a 52-week high, yet neither the S&P 500 Pure Growth nor Pure Value Indices are at a 52-week high. In fact neither index has been able to trade above its September high.
I guess with so many folks in this industry looking at the market from every which way, we are bound to see every now and then a “rare” perspective. The above is one for me and I find it interesting.
First off, though, the question is: What are the “Pure Growth and Pure Value Indices?” Well, I just happen to have an answer.
- They contain only those constituents of the S&P 500 that represent “growth” or “value” characteristics in the strictest sense. Unlike the regular S&P 500 Growth and Value Indices which together contain all of the S&P 500 stocks (with some stocks actually residing in each index), the Pure Growth and Pure Value Indices do not necessarily include all of the S&P 500 components. Therefore, they are true “growth” or “value” indices.
How about that? Good information to know. As well, it is interesting to note that these indices area diverging at this time. The analyst makes a good point – it is something to watch.
- It would be nice if one or the other, i.e., Growth or Value, was accompanying the S&P 500 at a new high as it may demonstrate more evidence of strong demand for “something”. Instead, apparently the “tweener” stocks are leading the market at this time.
But, is it anything to be overly concerned about? Maybe yes, maybe no. Do you recall the end of last summer when the small-cap divergence was underway? It became the hot topic of the talking heads and celebrity analysts on the breathless media tour. It might just be this too will catch on and get the ball rolling for a pullback.
- If it weren’t for the many other divergences present in the market, we probably would not give much consideration to this development. However, with so many other segments of the market now failing to keep up with the major averages, it is a bit concerning — if not now, at least in the intermediate to longer-term.
Yes, as of now, it is not a problem, but it could be, according to the analyst above. It might also be the market keeps doing what it is doing until the other “divergences” quit diverging and start to come into line with the major indices. In other words, the market might remain in a lull for a while until the US economy picks up a bit more steam, which it might just do in the next two quarters.
- U.S. small business optimism rose in October as more owners said they planned to invest in their companies and were having a harder time filling job openings,
Jobs, jobs, and more jobs is the road upon which the market will travel to new heights. More economic steam is one way out of the doldrums.
The other takes the market the opposite way. On that road, the breathless media begins to get bored with the status quo (read: folks are not paying attention), so they start to present all the reasons why the market is too high and why it will go down.
My guess is the latter will happen before the former, but then the former will appear in the future numbers and, then, off the market goes, back on the road to new heights. Cyclical? Maybe. Predictable? Possibly. Normal? Absolutely.
Trade in the day; invest in your life …
