By: Steve Smith
The stock market tends to overshoot on both the downside and upside. The way the indices came roaring back, the “Nasdaq 100 (QQQ – Get Rating)” hitting a new all-time high and the “S&P 500 (SPY – Get Rating)” on hopes of a “V” recovery, now looks increasingly-overly optimistic as a spike in COVID cases is causing a backpedaling of reopening the economy.
“Nike’s (NKE)” disappointing earnings report last night could be a harbinger that the upcoming earnings season will show Wall Street cannot continue to be disconnected from Main Street. I need to reiterate how the big five and high growth tech stocks have carried the headline indices over the two months; due to their huge market cap weightings, “Apple (AAPL),” “Microsoft (MSFT),” “Amazon (AMZN),” and “Alphabet (GOOGLE)” now represents 42% of the QQQ and 23% of the SPY.
As those big 5 are hitting all-time highs, they can push the indices up, masking the fact that the average stock is now 18% below its highs and over 65% of stocks remain below their 200 day -moving average — meaning they remain in a downtrend. But can we count on these ‘generals’ to remain bulletproof and keep charging higher if none of the soldiers follow?
Analysts were recently upgrading their price targets for S&P 500 stocks at the fastest pace ever. Keep in mind that at the S&P’s bottom in March, analysts were downgrading at the fastest ever. Prior instances of analysts chasing the rally almost always led to an S&P 500 pullback/correction in the next 2-3 months.
While there are some businesses that have clearly benefited from the work-from-home phenomenon. I don’t think… Continue reading at StockNews.com