With Netflix gapping down more than 50 points in early trading, one market veteran just warned, “They eventually pull the exit trigger and the market collapses.”
“We Should Understand The Risks”
July 17 (King World News) – Here is a portion today’s note from legend Art Cashin: A Mere Handful Carry The Load – Over the weekend, my friend and fellow market veteran, Jim Brown, over at Option Investor, wrote about how a mere handful of powerful stocks have provided the vast majority of this year’s index gains.
Here’s a bit of what Jim wrote:
There was a lot of discussion last week about the narrow breadth on the S&P. In 2018, only five stocks supplied 91% of the gains on the S&P. The other 495 stocks were tradeoffs. Some were higher, some were lower but their net impact to the S&P was only 9% of the gain. In any market where breadth is narrow and the leadership is held by only a few stocks, there is always risk of falling. Eventually the gains in those stocks become so unbalanced, investors are forced to sell. This typically happens when the momentum stalls for 2-3 days and traders begin to worry. They eventually pull the exit trigger and the market collapses.
I am NOT saying that is going to happen in the coming weeks. However, the gains in these stocks are so large, it WILL happen later this summer.
These stocks contributed the most to the S&P gains in 2018. AMZN 35%, NFLX 21%, MSFT 15%, AAPL 12% and FB 8%. All of these stocks are at or near new highs. Netflix dipped ahead of earnings and Apple is fighting those production rumors again. Regardless of their position today, the S&P would not be over 2,800 this weekend without them.
The S&P is only up 4.8% for the first half of the year. It is not like we had a 10-15% rally and now everything is overbought. These five stocks are overbought but they still have room to run before the charts begin to look like the Nasdaq bubble in 2000 all over again.
As investors, we should understand the risks.
Talk about angels on the head of a pin.
Overnight And Overseas – Asian equity markets were generally mixed. Japan reopened after a three day weekend and rallied modestly, partly in catch up. Hong Kong got dinged on signs of a slowing economy. Shanghai sold off moderately, while India climbed a bit.
In Europe, changes are fractional as traders ponder any Helsinki fallout.
Among other assets, Bitcoin has rallied and is trading just above $6700. Gold is a touch higher as is crude. The euro is flat against the dollar and yields are basically unchanged.
Consensus – As analysts sort through the debris of Helsinki, Fed Chair Jay Powell steps to center stage with the first leg of his semi-annual Congressional testimony. Stock traders will look to see if his comments move yields.
Stay very, very nimble.
***KWN has now released the powerful audio interview with James Turk and you can listen to it immediately by CLICKING HERE OR ON THE IMAGE BELOW.
ALSO JUST RELEASED: This Will Trigger The Next Major Surge In The Gold Price CLICK HERE TO READ.
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