Here is a very important lesson that you need to commit to memory: at market tops, fewer and fewer stocks participate in the upward move.

One of the main reasons I gave Bears the advantage over Bulls on the Saturday show last week and have lowered the market sentiment gauge to 40, is that fewer and fewer stocks have been partaking in the latest rally.

We can determine the number of stocks partaking in a rally by looking at breadth charts like the Advance Decline charts.

The Nasdaq was rising while the Nasdaq Advance Decline Issues chart was falling:

Nasdaq breadth chart shows fewer stocks partaking in the upward move.

In the Saturday Show a few weeks ago, I talked about this and how strong earnings from the FANG stocks and Microsoft were taking the broad index higher, but that should not be interpreted that overall the market was moving higher. These large technology companies on the Nasdaq with a dual listing on the S&P 500 too are basically legalized monopolies that create the illusion that the entire market is going up but in reality it’s just a handful of oligopolies. The Trump Administration is unlikely to do anything about these oligopolies.

The Trump Administration is following the playbook of Reaganomics. As part of its Reaganomics program, the Reagan Administration cut back sharply on the regulation of everything from monopoly and oligopoly to pollution and product safety, important elements that likewise effect the aggregate supply curve.


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