WASHINGTON, April 11, 2018: We began our companion column Tuesday by recalling the title words of a once-popular song. Namely, “What a difference a day makes.” Serious saber rattling by President Trump denouncing the latest Syrian chemical warfare outrage, put the kibosh stocks in Wednesday trading action. Headline fearful markets once again retreated from the positive Chinese comments on opening their markets, and are headed back down today.
To roll out another popular cliché from that learned sage Yogi Berra, “It’s déjà vu all over again.”
As our readers know, we’ve temporarily sworn off any but defensive trades in individual stocks. It’s just too insane to invest in these markets, which insist on moving not on stock fundamentals but on whatever real or fake headlines are freaking people out today. Unfortunately, today’s latest on a renewal of Syrian chemical warfare on its own citizens is almost certainly not a fake headline.
As Matt Maley observes in his excellent CNBC article Wednesday,
“The stock market has whipsawed back and forth since the beginning of the year, seeing wild daily swings as investor concerns from technology regulation to geopolitical tensions hit the markets.”
That’s about right. And today is all about geopolitical tension, as Trump draws another line in the sand, this time in opposition to Syrian chemical warfare. In so doing, he is threatening Assad as much as he’s indirectly challenging Putin.
Syrian chemical warfare vs. our own stock portfolios. Plus other outrages.
As usual, lefties are raising fears that Trump is ready to nuke the world. But in all honesty, if Bashir Assad can whack his own people once again with chemical weapons, what’s to prevent, say, Iran from whacking the Israelis – or us – with the same thing.
Obama’s line in the sand, blown away by the first sandstorm that hit that miserable country, is precisely what emboldened Syria’s coalition of murderers to do what they do all over again. And this is not the first but the second time we’ve caught the Assad government resuming its fascination with Syrian chemical warfare as a means to wipe out opponents. Permanently.
To be honest, Trump’s own recent eagerness to wrap things up in Syria didn’t particularly help matters. It may, in fact, have emboldened Assad and his Russian and Iranian pals to get things done the quick and easy way. Better living through chemistry.
In any event, the current result is, quite frankly, a pissing contest between a pair of genuinely macho dudes. And that’s what makes traders and investors really, really nervous, particularly on top of the China stuff. That problem, at least, seemed on its way to resolution on Tuesday, leading to a snappy rally.
As for today’s belligerant news, pile on that highly un-ethical and possibly illegal FBI raid on the president’s longtime personal lawyer, and you end up with substantial nervousness on all sides. That’s not a very good situation when the war drums and trade drums are beating ever more loudly.
A silver lining in current chaos?
Even so, Matt Maley sees a silver lining in this current international mess. He exhorts our currently cowering Wall Street bulls to “Rejoice.” Maley claims
“[A] technical development beneath the market’s hood is giving some reason to be optimistic at this juncture.
“I’m talking about the market’s breadth, or the number of stocks advancing versus the number of stocks declining to indicate the market’s health. We plot those numbers out into what’s referred to as the market’s advance/decline line, or the ‘A/D line.’ And right now, the line relative to the market is appearing to be quite positive, as fewer names are beginning to participate in declines.”
That’s an interesting comment. I, too, have been trying to read the tea leaves to discover what’s really going on in this inscrutable market. Stocks that I follow have, in fact, been turning up a bit in recent days, despite 2018’s thus far dominant “Fear Factor.”
The twin keys for me are the McClellan Oscillator and the “On balance volume” indicators. The former indicates – at the moment – less pessimism generally. The latter show the balance of our currently low trading volume is tending ever so slightly upward.
This means that buyers are sneaking in on bad days and enlarging their positions in potentially winning stocks little by little rather than in great tranches. If this continues, it will put a floor in below most stocks, aiding in their ability to move higher when heavier volume catches up.
But “market breadth” – something I don’t actually look at much – may also be an important factor here as Maley notes.
“Essentially, what we look for when it comes to this measure is whether it confirms what is going on in the actual movement of the S&P 500. When both the A/D line and the market rise together, it confirms that a lot of stocks are participating in the rally; this is healthy, and bullish. If, however, the market is rallying when the A/D line is lagging, this reflects a lack of participation in the rally, and that tends to signal the rally is running out of steam.
“The same is true in the other direction. If the S&P 500 and its advance/decline line are falling in tandem, this shows a bulk of stocks are indeed involved in the decline … and the decline has more room to go. In another scenario, if the market is declining and the A/D line is not falling to the same degree, that divergence indicates the sell-off is growing tired and a bounce should be in store. Most recently, a bullish divergence has developed between the two.”
How key market indicators can help individual investors
In actuality, this means that three key market tracking measures, two of which I watch like a hawk, and a third that I’ve mostly ignored until now, illustrate we could be building a base for a move higher in the not-too-distant future. That’s assuming of course that The Donald and Vlad the Impaler don’t decide to ignite WW III (or IV if you count the Cold War) over a murderous Middle East dictator who doesn’t even have the support of a majority of his people.
Again, Maley observes
“Both the market and the A/D line fell in tandem back in February, but this has changed during the most recent decline over the past two weeks, as the S&P 500 fell and retested its February lows. However, the A/D line has not fallen anywhere near as far as the S&P 500 has; this is telling us that declines are becoming less broad-based.
“Having said all this, we’d still like to see the A/D line make a ‘higher high’ before we can say this is an outright bullish situation. To be sure, the A/D line retested its all-time highs in March, but the market still rolled back over in a major way.
“If the A/D line can blow through those old highs, it should be an indication that the stock market will follow it higher.”
How will the Don and Vlad show end?
Well, unless Don and Vlad reach an agreement for world peace and fair international trade this afternoon, today won’t be the day the A/D line blows “through those old highs.” But if we can see some kind of truce unfold leading to productive (not fake) negotiations on those sticky Middle East issues – not to mention the latest unfortunate resurrection of Syrian chemical warfare against its own citizens – that could lead to the kind of rally that will end our current, rolling market correction. For a while, anyway.
In the meantime, once again, it’s best to avoid too many major commitments to new stock and ETF positions right now. Zipping into small numbers of shares in likely-to-soar ETFs – specifically, those involved in the financials, healthcare and tech – on seriously down days, is likely our best course of action until the current nonsense stops and begins to reverse. If nothing much is attractive, cash is always a good way to go in a pinch.
Clear evidence of an earlier Syrian chemical warfare attack: Massacre in Ghouta. (Image via Wikipedia entry on Syria’s chemical warfare, CC 3.0 license)