Volatility and divergence are increasing, as stocks add poor economic data to the cart they're dragging. A short-term top is likely close, and MoneyShow's Tom Aspray explains the telltale signs investors should watch for.
Stocks closed lower Friday, breaking a four-day winning streak, although the Dow almost made it back to positive territory after falling quite a bit in early trading. Though the widely anticipated earnings from JPMorgan Chase (JPM) and Wells Fargo (WFC) were better than expected, both stocks fell.
Last week's surge to new all-time highs in the S&P 500 caught many of even the most bullish analysts by surprise, as it came very close to the next magic target at 1,600. Still, not all market averages are in sync; the Dow Transports and Russell 2000 have been diverging since early April.
The selling early Friday was due in part to the much weaker retail sales report, which was the lowest in nine months. That was followed by the preliminary University of Michigan consumer sentiment survey, which was also much lower than March's final reading of 78.6.
Longtime readers are likely surprised that I would suggest stock prices now might be projecting a too-positive short-term economic outlook. Many times over the past two years (such as Armageddon Fears Are Overblown on June 1, 2012 and Can Doom and Gloom Save the Market? on September 16, 2011), I have made the case that the internal strength of the stock market was signaling that the economy was actually stronger than most thought.
The technical picture for the stock market is still positive, as is my view for the economy. That said, I currently think prices may not be supported by the economic data in the next few weeks.
If the stock market completes a short-term top in the coming weeks, as it has in the past three years, it would allow for stock prices to get back in line with the economy.
The market still needs a stronger technology sector to help push it to much higher levels, and this is a strong seasonal period for many of the technology industry groups.However, this chart of PC shipments from The Wall Street Journal confirms that tablets and phones are the future as PC sales slump. While tech giants like Intel (INTC) and Microsoft (MSFT) are trying to adapt to this trend, they have some catching up to do.
This comparison chart of the PC makers since the start of the bull market shows that despite its decline from the 2012 highs, Apple (AAPL) is still leading—up 403%, which is almost three times better than IBM's 145% gain.
The Spyder Trust (SPY) is not far behind IBM, while Dell (DELL) is up just 67% and Hewlett-Packard (HPQ) is down almost 23%. Of course, this is just one part of the technology sector, but it does suggest we should look out for new bellwether tech stocks.
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