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The news headlines sound terrific:

“The S&P 500 climbs above 2,400 for the first time.” 

U.S. stock indexes rose to new highs as a rally in crude and dollar weakness sparked gains in commodities producers. Emerging-market assets jumped and Treasuries slid.

On the other hand, beneath the surface there’s an ugly divergence.  Only 58% of NYSE stocks are above their 200 day moving average today compared to more than 72% in February.   This is the lowest reading since October and a sure sign of a very tired bull (market).

FACT: More and More Equity Market “Bulls” are Hiding Out in Fewer Stocks

Bottom line, 26% of the market is controlled by the top 15 stocks, there’s $5T of market capitalization in just those names.  So when Apple AAPL, Google GOOG and Amazon AMZN march high, indexes like the S&P 500 which are market cap weighted don’t tell us the whole story.  Not even close.

Percentage of NYSE Stocks above their 200 Day Moving Average

The Nasdaq 100 is up 18% on the year while the Russell 2000 is only 2% higher.  Forget about the noisy headlines, the truth is MORE and more stocks are being left behind in this bull market. 

What’s our List of Systemic Risk Indicators Saying now?  Pick up our latest note here:

Join our Larry McDonald on CNBC’s Trading Nation, Wednesday at 3:05pm ET

What’s Our List of Systemic Risk Indicators Saying now?  Pick up our latest note here:

Oil is on a roll. WTI is up 12.4% from the May 5th lows while Brent 12.1% higher in a  beautiful counter trend rally.

“We’re getting a solid capitulation reading in our seven factor model today focused on the oil space.   We recommend buying into capitulation today.”

The Bear Traps Report Trade Alert, May 4, 2017

Higher oil prices, infer higher inflation, which should drive interest rates higher.  Typically, 5 year break-evens track this spread and move higher (break-evens help market participants measure inflation expectations).   However, so far today rates are broadly stuck near their post CPI lows from last week.  This speaks to the large bid for bonds.  It looks like rates will want more time to assess the quality of these production cuts.  The market wants to see if there is a more meaningful impact on oil exports, which have not really slowed from OPEC countries post the November deal.

Oil, Rates and the Fed

The front end of the oil futures curve has surged (orange line above)  relative to 2019 pricing contracts.  What does backwardation mean for rates and the FOMC?  What we have seen since the November output cuts from OPEC, US inflation expectations move in close lockstep to oil prices, but more importantly, the structure of the oil curve. Following the news that Russia and Saudi Arabia are willing to extend the current cuts by nine months, the calendar 18 brent spread went back into backwardation.

What’s Our List of Systemic Risk Indicators Saying now?  Pick up our latest note here: