Two Connected Storylines Via Their Charts

CAMS Weekly View from the Corner – Week ending 7/10/2020

July 13, 2020

We are now solidly into summer time and the overall stock market remains blah.  The overall stock market that is.

In previous Weekly View editions we had offered that a stock pickers market seemed to be developing.  To date here in 2020 that has unfolded within the market landscape.  That is, while the overall market has been dazed and confused select individual companies have provided upside opportunities.

Certain stock market indices have performed according to how much they are comprised of the limited number of individual companies that have performed well.

The well recognized Dow Jones Industrial Average has not been one of those indices.  By-and-large, the thirty companies making up this index have not been in the favorable group.  To the degree the Dow has been able to put on some upside it has been largely driven by the very small number of stocks that have performed quite well.

Two weeks ago we shared the chart below of the Dow whereby we identified certain issues that had developed with its behavior.  Said issues were suggesting some potential problems going forward.  Here today we are sharing the same chart updated to Friday’s close.

The bottom line is in the previous two weeks the Dow has done nothing.  Frankly, that is a bit of an accomplishment on its part being that is has been able to hold itself together when, as previously shared two weeks ago, some storm clouds were building.

Behaviorally speaking, it is as though it wants to get itself put back together and to put on some additional upside trend and yet it is just stuck.  What gives?

$INDU - 7.13.20
Click Link For Larger View:  http://schrts.co/gJiRErMY

Honestly a lot gives if you will.  There are several tributaries of thought we could go down in dissecting the “blah” of the Dow but traversing those various tributaries would encompass too much for this edition.  What we can do is reduce a very large issue down to some level of reasonable simplicity.

Below is a chart produced by First Trust which compiled data from Covid-19 Tracking.com.  The link below the chart provides several data points into the Covid-19 backdrop.  Speaking to the above Dow chart and its trendless confusion the below chart succinctly gives us cause for said confusion.

Can we say the backdrop is offering horrible news/great news simultaneously?  As depicted via the blue line new Covid-19 cases have continued an upward trend in the previous several weeks – the horrible news.  Simultaneously, via the orange line, daily reported deaths have maintained a consistent downward trend.  Literally, the consistency in said downtrend is the great news.
COVID-19
Click Link For Larger View & More Data:  https://tinyurl.com/ydbg2ntz

The Dow depicts the overall market confusion.  One day its great the next day it is not.  With the above, we can see why.  When looking at the above through the lens of “society returning to normal” we can see why market participants are not sure how to handle the above reality.

With this, seemingly for the near-term, the Dow and through it the broader market will continue to be unsure of its trend until more collective Covid-19 reality unfolds.  If the death rate trend can continue its steadfast downtrend this will be continued great news for all of us and with this will give the Dow some Covid-19 reprieve.  This then should show up in its performance as it celebrates a true re-opening of said society.

In the interim, we continue to watch and expect market confusion seemingly on a daily basis.

I wish you well…

Ken Reinhart

Director, Market Research & Portfolio Analysis

Portfolio Manager, CAMS Spectrum Portfolio

Footnote:

H&UP’s is a quick summation of a rating system for SPX9 (abbreviation encompassing 9 Sectors of the S&P 500 with 107 sub-groups within those 9 sectors) that quickly references the percentage that is deemed healthy and higher (H&UP).  This comes from the proprietary “V-NN” ranking system that is composed of 4 ratings which are “V-H-N-or NN”.  A “V” or an “H” is a positive or constructive rank for said sector or sub-group within the sectors.

This commentary is presented only to provide perspectives on investment strategies and opportunities. The material contains opinions of the author, which are subject to markets change without notice. Statements concerning financial market trends are based on current market conditions which fluctuate. References to specific securities and issuers are for descriptive purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. There is no guarantee that any investment strategy will work under all market conditions. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. PERFORMANCE IS NOT GUARANTEED AND LOSSES CAN OCCUR WITH ANY INVESTMENT STRATEGY.