There’s nothing that so captures a man’s attention as a cockeyed nostril.
You heard it right – a cockeyed nostril.
So you can imagine our shock and the eye-bulge that ensued when we encountered the following bit of market chartitude – a graphic that sums up nearly perfectly what we’ve been saying for a couple of years now about the state of our current bull market and the direction it’s headed.
Have a gander –
And what’s it show? – That from the beginning of the year, big-caps have outpaced the mid-tiers, which, in turn, have outperformed the small-caps.
Our contention has long been that our current ‘Facebook Market’ (as we’ve dubbed it) will end up being nothing more than a high stakes, professionally-marketed popularity contest, with the biggest and best-branded names in the stock universe soaring ever higher so long as they can produce anything that even approaches a respectable level of earnings. We’ve also claimed that it will be on the back of these ‘big names’ that the indexes will rise like a 21st century Hindenburg, while the rest of the market drifts sideways or even loses ground.
How could such a thing come to be?
All of this, of course, is a function of the tremendous liquidity available to the system, and the need for Wall Street to funnel those funds into profitable bets for itself and its biggest institutional clients.
And tell me, friends – is it easier to sell the prospects of global grease peddler Burger King, or OTC Bulletin Board wannabe, SitzFleisch Beef and Beer Halls, Inc?
The answer is clear.
And it’s for precisely that reason that more and more funds will be forced up the narrow nostril of the more easily sold big-caps, while those without the marketing capacity to be household names will wither and die on the vine – regardless of their earnings potential.
In short, this is Hollywood, baby, and if you ain’t got the plastic surgery and the screaming teen following, you ain’t sheeeet.
The small-cap and even mid-cap ETFs will be loser bets in the months and years to come, though individual issues from those classes may thrive. Our aim will be to concentrate on the biggest, most exciting names, the hype-machines, even if they have a less robust earnings profile.
That your proof, carpetbagger?
Very often big-caps will outperform smaller issues.
That’s right, puncture-macher. Very often they will.
But have a look at this, now –
Bloomberg News informs us that even though the NASDAQ Composite has gained over 9% on the year, it’s an increasingly narrow set of names that are contributing to the rise.
As the chart above highlights, almost 50% of the index’s components have fallen at least 20% from their highs – the common definition of a stock in a bear market.
Yes, Apple is climbing, Microsoft, Intel and Facebook.
But where are the rest?
Expect more of the same down the road.
We didn’t expect it to come so soon.
If the final push into stocks is already upon us, then the demise of gold – for the time being – is almost certainly also at hand.
And from the selling we see in the gold pits, the downward spiral may have already begun.
Look at the chart –
This is the SPDR Gold Trust (NYSE:GLD), the most widely traded, liquid gold bullion ETF on the planet. More than anything, it’s a barometer of retail investor interest in the shiny metal, and its current status is clearly that of an ebola-infected zombie.
Prices have been falling for two months, and with support broken early this week (in black), gold’s fate is sealed.
Only a steep decline below the oversold RSI 20 line would lead to a bounce, and even then, we’d expect it to be short lived – up to former support/new resistance at GLD $119.75.
With new lows posted yesterday, we’re currently on a one-way ticket down and would recommend day- and swing-traders to set up a short position with $114.50 as a potential target.
And for all those whose nose got out-of-joint listening to this…
Get yourself a good surgeon.
Many happy returns,
Matt McAbby, Senior Analyst, Normandy Research