Larry’s Note: On Tuesday, October 7, at 2 p.m. ET, I’m revealing my #1 income secret. It helped me make $95 million in profits in one year.
It’s a big reason my hedge fund posted 20 straight years of profits without a single losing year. And since going public with it for the first time almost five years ago, we’ve averaged annualized gains 4.6X better than the S&P 500… every single year.
All while collecting income almost daily.
But most people don’t know how to tap into this lucrative income strategy to fund their retirement dreams. That’s exactly what I will show you how to do on Tuesday.
I’d love for you to attend. You can RSVP with one click right here.
It might feel like stocks can do nothing but go higher.
The S&P 500 has spent 104 days above its 50-day moving average. That’s the fourth-longest streak since 1990. It made 23 record closing highs last quarter alone.
Mega-cap growth stocks keep getting bigger and are pushing the S&P to new heights. The top 10 largest stocks by weight now make up around 40% of the index. That’s the highest concentration ever.
And Nvidia’s (NVDA) rally to an all-time high this week keeps setting market capitalization records. Nvidia is now the first company to ever surpass a market valuation of $4.5 trillion.
But while things look great on the surface, there’s been a sharp deterioration under the hood.
Simply put, the average stock isn’t keeping up with the major indexes…
Deteriorating Breadth
Breadth is a way of measuring participation in the prevailing trend.
There are a number of ways to measure breadth, such as monitoring how many stocks are making new 52-week highs.
You can also track the number of advancing stocks relative to declining ones on any given day. Or you can compare the volume in advancers versus decliners.
We can also look at how many stocks in an index are trading above key moving averages. And right now, this measure is presenting a troubling picture…
A moving average (MA) smooths out the price action for the period you’re looking at. It’s “moving” because it constantly updates to include the most recent period over time. It’s a way of visualizing trends.
The 50-day MA is a common intermediate-term measure of a trend. Meanwhile, the 20-day MA looks at shorter-term price levels.
The number of stocks in intermediate- and short-term uptrends is where things get concerning for investors.
Across the S&P 500, only 55% of the stocks in the index are trading above their own 50-day moving average, even as the S&P trades near record highs.
It’s even worse when you look across the entire stock market on a shorter-term basis. Across major exchanges, only 45% of stocks are trading above their 20-day moving average.
Said another way, 55% of stocks across the market are in short-term downtrends.
The deterioration in market breadth is particularly worrying given the growing number of volatility catalysts waiting ahead.
|
Tune in to Trading With Larry Live Each week, Market Wizard Larry Benedict goes live to share his thoughts on what’s impacting the markets. Whether you’re a novice or expert trader, you won’t want to miss Larry’s insights and analysis. Even better, it’s free to watch. Simply visit us on YouTube at 8:30 a.m. ET, Monday through Thursday, to catch the latest. |
Volatility Triggers
This deterioration in breadth is occurring at a time when various headwinds are stacking up against the stock market.
The month of October is already notorious for bursts of volatility.
Looking back, volatility during October is 33% higher than the average of the other calendar months. Famous episodes include October 2008 during the Financial Crisis and the Black Monday crash on October 19, 1987.
This time around, there are two big catalysts that you should monitor. The first is with the Federal Reserve and the outlook for rate cuts.
Recent comments from Fed Chair Jerome Powell highlighted the challenges of balancing its job market and inflation mandates. Jobs data is weakening, but core inflation remains stubbornly high.
That has investors reining in expectations for rate cuts. Right now, market-based indicators point to only two to four rate cuts ahead. That’s come down in the last couple of weeks.
Yet hope for rate cuts has been an important driver of the recent rally.
We’re also now entering the first government shutdown since 2018. Hundreds of thousands of federal workers could be furloughed.
A shutdown costs the economy an estimated $1 billion every week it lasts. Plus, investors will go without key data that could influence the Fed. The September payrolls report is scheduled for release on Friday.
The government has already warned that economic reports will not be released during the shutdown.
So investors will be left guessing on the health of the job market… all while each day of the shutdown takes an economic toll.
That means the stock market is walking a very thin line. And the pullback in the average stock could be a warning that October volatility will strike again.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
P.S. I hope you’re enjoying all of your Opportunistic Trader content. That’s why I have a favor to ask…
Would you please add services@exct.opportunistictrader.com to your contacts list?
That will “whitelist” us with your email provider and help ensure these emails reach your inbox. If you’d like to learn more about whitelisting, you can check out our detailed instructions here.
Thanks for your help!
|
Free Trading Resources Have you checked out Larry’s free trading resources on his website? It contains a full trading glossary to help kickstart your trading career – at zero cost to you. Just click here to check it out. |