The stock market rally is not what it was in April when the market first came off of its March lows and went up so hard that everything went up fast – including junk stocks of companies now destined to go bankrupt. It made for an easy moment when people could blindly buy just about anything and make money.
Now a few leaders are still running hard, but many stocks that were acting good a few weeks ago no longer are. The stock market strength is narrowing fast. You can see the dichotomy if you compare the broad based NYSE composite index to the market weighted Nasdaq, which is now being heavily influenced by five stocks.
Notice how the Nasdaq recently made a new high and the NYSE composite is not only still way off of its March high, but even still remains below its 150 and 200-day moving averages!
This is the story for most stocks in the stock market now. They rallied up hard, but actually peaked out in early June around the same time the NYSE index did. This doesn’t mean the stock market is going to crash next week, but it means that such stocks are now difficult to trade and make any money in – stocks specifically trading below their 150 and 200-day moving averages act as millstones that drag an account into the bottoms of the ocean where they get picked apart by trading sharks.
For those that want to trade it is best to stick with only the strong stocks and sectors. Outside of AMZN, FB, NVDA, and a few other big cap stocks the only really strong thing in the markets is gold, silver, precious metals and mining stocks.
The reason why is that over 20% of US companies trading on the stock market are now zombie companies. These companies have so much debt that they no longer can innovate or invest. It’s a result of the current economic collapse (GDP poised to shrink over 30% in just this 2nd quarter of 2020) and the legacy of a decade of bond fueled corporate buybacks used to help water stocks at the expense of shareholders. In 1908 giants like Walter Rauschenbusch exposed this practice, but now people such as Elon Musk are simply praised for such tactics. These zombie companies now only exist to one day go bankrupt or to one day get bought out by a raider or a competitor. They are kinda like Teldar Paper in the classic Oliver Stone Wall Street movie. The CEO’s looked up to in 2020 do not run profitable companies.
In case you missed it I also talked about the opportunity in precious metals now and explained this problem of zombie companies in a video I posted up earlier this week in a blog post. Find it by clicking here.
-Mike
