Evening Note: Conviction This Time?

Another big rally in the major equity averages today! The Dow closed up 217 points, but the big moves were in the Nasdaq, +1.87%, and the S&P 500, +1.54%. Which means tech (dominates both indexes) had a great day.

Question of course is — per much of my messaging herein of late — was there conviction in today’s move?

I.e., was there volume? Did the bulls come screaming in with big buy orders in their push to take stocks ever-closer to all-time high territory?

Frankly, no…


Recall that yesterday’s (big up day) volume was 40% below Friday’s (big down day), which was 61% above (that’s called conviction) Thursday’s. Well, today’s (big up day) volume was 37% below yesterday’s, and, much like yesterday, was 12%, 13% and 17% below the 5, 10 and 20-day average volume numbers respectively (that’s called lack of conviction).

However, on a positive note, also like yesterday, breadth was good: S&P 500 advancing members outnumbered decliners by an impressive 7 to 1. While not as impressively, but still bullish, Nasdaq advancers outnumbered decliners by a little better than 2 to 1. 

Today’s rally was indeed a fitting way to end an exceptionally strong quarter for stocks. The best in fact, according to CNBC, since 1987 for the Dow, 1998 for the S&P 500 and 1999 for the Nasdaq.

Now, forgive me for constantly pointing out that history’s biggest moves all-too-often occur either in the midst of, or within the close vicinity of big bear markets. Cases in point being the three periods referenced in today’s headlines.   click each insert below to enlarge…

Here’s the Dow 1987. Note the huge Q1 20% rally, followed by, alas, the epoch 36% October plunge:


And here’s the S&P 1998+. Note the incredible 32% rally in Q4 ’98, followed by the tech bubble bear market that began just over a year later, taking stocks down 50% in the process:


And the Nasdaq of 1999. Note the unbelievable 51% rally in Q4 ’99, followed by the utterly devastating 78% plunge that began a mere 3 months later:


Sorry folks! Believe me, it is not at all my pleasure to constantly rain herein on the bulls’ parade. It is, however, my (our firm’s) commitment to responsibly manage our clients’ portfolios through what is arguably the most challenging (read risky) risk/reward setup in modern market history.

To engage un-hedged with today’s stock market given our assessment of present general conditions would be the definition of irresponsible, regardless of where the crowd, and the Fed, take things in the short-run from here. 


Stay tuned…




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