Cracks are appearing that effect NFLX, and the stock market in general.
Apple added 49 points to the Dow's 52 point advance August 2nd to push the Dow to a new record. This new Dow record does not have that much support when you consider all of the divergence occuring in the markets. The NASDAQ has been diverging from the Dow. What's more, there is divergence between the Dow and the broader market.
The Dow is deceiving at times. It has been dominantly influnced lateley by a few companies like Boeing, Apple, Verizon, etc. Boeing which has gained 20% over the last month; Verizon's nearly 10% gain over the last week; and Apple's nearly 5% gain today. As John Murphy said: "While that's good for the Dow, history suggests it's not necessarily good for the rest of the market. That's because Dow leaderhship has usually been more a sign of caution than confidence. The Dow Jones Industrial Average is composed of thirty of the bluest of blue chip stocks. That's where investors go when they're looking for more safety. They buy lesser quality stocks when they're more optimistic. Right now, they're favoring the blue chips.''
ISM Non-manufacturing Index has been declining and is flagging a deceleration of economic pace, and there are many more signs that all is not well even though the Dow's advances make headline news.
There are times when the Dow's leadership is not good for the market as a whole. This is a time when the Dow is not representing the broader market. History repeats itself. The broader market is diverging from the Dow. Late in the bull markets, you see the Dow advancing when most of the market is weak. You should study the broader market, and look for potential cracks in the market. Most investors do not do that. The broader market does not look great. However, to most investors, I admit that everything looks great to them judging mostly by new record highs in the Dow. There is always a top in a bull market, and everything always looks good to most investors at the top. I do not know when we will top out, but I am afraid we are getting dangerously close. To me, this market does not have legs!
Remember Bob Farrell's 10 rules of investing:
1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an opposite excess in the other direction.
3. There are no new eras—excesses are never permanent.
4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
5. The public buys most at the top and the least at the bottom.
6. Fear and greed are stronger than long-term resolve.
7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.
8. Bear markets have three stages: sharp down, reflexive rebound, and a drawn-out fundamental downtrend.
9. When all the experts and forecasts agree, something else is going to happen.
10. Bull markets are more fun than bear markets.
