The Camouflaged Correction

The chart above shows that the most popular index that measures the market-cap weighted performance of the largest 500 stocks in the US stock market has shown a continuing rising pattern.  That is good, and you can't discount that most people's portfolios of US stocks have probably experienced gains in the last two months.  However, many other indices such as the Russell 2000 Growth, NASDAQ Composite, S&P 400 and S&P 600 are about even over the past two months.

If you look at the action of the 900 stocks in the S&P 500 and S&P 400, you see a definite number of stocks that are no longer trading above their 50-day moving average (orange line).

So why is the S&P 500 still faring so well?  If we dissect the market into the different sectors, we find the defensive grouping of stocks (Utilities, Consumer Staples and Healthcare) carrying the load.  Some of our indicators have been suggesting that the smart investors are growing more bearish, while the dumb investors (usually the public investors) are getting more bullish.  If we put our twist on this, we could say that even though the public investor is now pushing stocks up, they are not pushing the growth-oriented stocks, but instead, are buying defensive issues.

Don Hays

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