If this market really looked like 1999 or 2008, the evidence would already be obvious.
It would show up in narrowing participation. Fewer stocks going up. More divergences beneath the surface. Leadership breaking down while the headlines stayed optimistic.
That’s exactly what happened at the end of the Tech Bubble. And it’s exactly what happened heading into the Great Financial Crisis.
But that’s not what we’re seeing today.
In fact, there are more stocks in uptrends now than there were in either of those periods. And you don’t have to take my word for it. You can go look for yourself.
All you have to do is count.
Counting Helps
There are plenty of ways to measure whether stocks are actually going up.
You can look at the percentage of stocks trading above their 200-day moving average. You can count how many sectors are above their own 200-day.
You can even simplify things and stick with the major indexes to see whether they’re confirming one another.
However you choose to measure it, the conclusion is the same: today looks nothing like 1999 or 2008.
But you have to actually look.
We’ve already seen that nearly two-thirds of the stocks on the New York Stock Exchange are currently in uptrends. That’s not the kind of participation you see in weak or deteriorating markets.
And if you want to keep it even simpler, just check the majors.
The Dow Jones Industrial Average is closing out December at the highest level in its history.
The Dow Jones Transportation Average is right behind it, just pennies away from a new all-time high of its own:
This kind of straightforward market analysis goes back to the late 1800s, when Charles Dow laid out what we now call the Dow Theory.
One index represents the companies that make the goods. The other represents the companies that move those goods.
When both are making new highs, how bad can things really be?
As it turns out, not bad at all.
It Wasn’t Like This in 1999 and 2008
I strongly encourage you to go back and look at the market in late 1999 and again in 2008. See it for yourself. Today’s environment looks nothing like either of those periods.
Could this market eventually turn into another Tech Bubble collapse or a Great Financial Crisis? Of course. Anything is possible, and I’ll be the first to tell you that.
But that’s not the same thing as evidence. And, right now, there is none.
In 1999, the Dow Jones Transportation Average peaked in early May and spent the rest of the year diverging. Participation steadily narrowed as fewer and fewer stocks remained in uptrends. The market ultimately rolled over and began crashing in early 2000.
In 2008, the sequence flipped. The Dow Jones Industrial Average peaked in October 2007. Transportation stocks pushed higher into the summer of 2008.
But, once again, participation was eroding beneath the surface. Fewer stocks were trending higher, and then the market broke down.
That’s what major tops actually look like.
And that’s not what we’re seeing today.
So Many Uptrends
There are uptrends everywhere in today’s market.
Go sector by sector and you’ll see that nearly every one of them is trading above its 200-day moving average – with the lone exception being Consumer Staples.
That’s exactly what you’d expect in a healthy market. Staples tend to lag when investors are willing to take risk, and that’s what’s happening now.
Zoom out globally and the message is the same. Stocks are making new highs across Europe, Asia, Africa, and Latin America.
That’s what bull markets do. Broad participation. Rising prices. Leadership across regions.
Now, as we head into the dreaded midterm election year, of course we’re on alert. Historically, midterm years are the weakest stretch of the four-year cycle. The data is clear.
So we’re watching closely for any signs of deterioration, something that would tell us the trends are starting to roll over.
But, so far, it hasn’t happened.
When it does, we’ll be right here talking about it – and adjusting accordingly.
I’m not a permabull. I’m a realist. In bull markets, owning stocks pays better than fighting the tape. In different environments, different playbooks apply.
For now, do the work. Go count how many stocks are in uptrends. Count how many sectors are participating. Compare this cycle to past ones.
And keep an eye on the Dow averages – the Industrials and the Transports.
If both are making new highs, comparing this market to 1999 or 2008 isn’t cautious.
It’s careless.
Focus on the data. Ignore the narratives.
And have a Happy New Year.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs