Leaders Index 2-7-20

[Jerry Samet]

There was no update Thursday due to a data problem. The market was weak yesterday mainly due to concerns about the coronavirus. The major averages opened weak and tried to rally after that. The rally attempt didn’t hold and the market was weaker into the close. All the major averages closed near the bottom of their intraday trading ranges, showing a lack of support. The losses were pretty evenly divided with the COMPQ and the NDX declining .54% and .47% respectively. The SPX fell .54%. Volume was lower across the board. It fell 2.44% on the New York and 2.71% on the Nasd. This shows there was not heavy selling pressure as prices declined, a good sign. Leading stocks have been lagging for a while now and that continued yesterday. The leaders index fell .72% on Friday and closed in about the middle of its trading range. Volume was higher and above average. This shows distribution in quality growth stocks. The market is generally acting well right now. The charts of the major averages look good. There is some more volatility due to the corona virus and it seems it may be taking over from trade as the primary source of short term volatility. There was lower volume yesterday, which shows that large institutional players were not dumping stocks heavily yesterday and so there was no distribution in the major averages. The real issue that I see right now that must be watched is the action of the leading stocks. The leaders index and other indices of quality growth stocks have been lagging in the last week or two. The chart of the leaders index is showing something of a change in personality. From mid Oct. to a couple of weeks ago there was an orderly advance. The intraday ranges were tight and the index rose above its short term 9dma. Strong action. Recently the index has struggled. There has been wide and loose action with larger intraday swings. The index is now back below its important 17dma and the relative strength line of the index is close to its 50dma. As bull markets age they tend to get more narrow. The major averages continue to advance but with fewer and fewer stocks following them. This can be seen in the underperformance of leading stocks and the weakening of the advance decline line. If this is occurring now we are likely in the early stages, but we must keep a close eye on the advance/decline lines of the Nasd and the New York markets. If we see weakness defensive action is a good idea. Right now there is not much evidence of any real trouble, but if stocks continue to underperform that could change. Jerry