Company founders are unloading their stock at historic levels, some selling for the first time in years, amid soaring market valuations and ahead of changes in tax laws.
Company leaders Cash Out, Thursday’s Wall Street Journal
We remarked on the potential topping action in the Dec. 1-3 sharp selloff in our last column. We also had expected a rally into January seasonally known as the Santa Claus rally. Let’s look at the indicators now.
The most reliable indicator is the NYSE Advance Decline Line. It dropped 20 points from 67 to 47 those three days. It has since rallied back to that level, but short of the November high at 72.
The index that has really powered the markets to new highs remains quite weak in the face of two 500-point rallies this week. That is the tech-heavy NASD. In June, some 65% of NASD stocks were over their respective moving averages. The December sell-off reduced that number to 20%. Now just 25% of the shares can make that claim. This reflects a widespread lack of breadth, the percent of stocks still participating in the rally. In February, 85% of NASD stocks were over their moving averages. From this standpoint, it is amazing the overall NASD average is as high as it is. Since November 2020, the NASD has gained some 50%. That is also worrisome as the graph takes on a parabolic, very steep look. Such moves usually end in a big reversal.
West Texas Intermediate Oil prices hit $85 completing a two-year up move from absurdly low prices when producers were paying third parties to take their oil. After a correction just above $62 prices reached $73. That could well be the B up of an A down followed by C down correction.
Natural gas completed a correction all the way to $3.60. Texas producers are trying to reassure us we will not have a repeat of last February’s energy shortage.
Meanwhile, the economy has produced millions more jobs than job seekers. Shortages of goods remain and the supply chain is not quickly fixed. The Chinese real estate boom has taken its own COVID problems so to speak. Fitch bond rating firms reports Evergrande and Kaisa have defaulted after missing U.S. bond payments. Kaisa’s June 2024 bond has fallen from 100% or par to less than 30%, a typical warning of complete default.
And then there are those 175,000 Russian troops in Ukraine, Biden telling Putin not to invade but we would not militarily respond, and Jill Biden denying the public distrust of her husband’s mental cognitive abilities. Amid the sagging breadth numbers for the markets, the Wall of Worry is quite high.
