This stock market is really a tale of two Rockys -- the real-life Marciano and cinema's Balboa.
First, a primer on Marciano. Perhaps the most feared fighter in boxing history, he was the only heavyweight champion to retire undefeated (49-0). The "Brockton Blockbuster" was brutally brilliant -- constantly pressing forward until he finished his opponent. A famous fight photo shows Marciano slugging
Jersey Joe Walcott
(a great fighter and champ whom Marciano would defeat twice) with a short right, and it looks like Walcott's face is about to explode. Only
did Marciano go 15 rounds -- and that was with
(also a great fighter and champ whom Marciano would also beat twice).
And a short reminder on Balboa: We first meet this palooka from Philadelphia in a local gym. He's a tomato-can, a club fighter and a leg-breaker (and an unconvincing one at that) for a local mob guy. In short, he's a stone's throw from skid row. But he catches a break and makes the most of it, which of course is the reason everyone roots for him. He's the ultimate underdog who gets the girl ("that pet shop dame") and a cool dog (Butkus) to go along with his pet turtles Cuff and Link. But while Rocky leaves it all in the ring, he loses the fight.
That's a helluva way to get to a point, but if you're a fight fan you'll understand why. The market reminds me of Marciano because it too is brutally determined -- continuously moving forward despite heavyweight obstacles in its path. As represented by the popular averages (the
Dow Jones Industrials
), the market has so far been able to absorb the following combination of punches:
- Formerly bearish and now bottoming bonds (see my thoughts on bonds from Aug. 17 and Aug. 23).
- A weak dollar overall and against the yen.
- An actively tightening Fed. The Fed has twice raised rates -- yet the phrase "Don't fight the Fed" has hardly been heard. In pugilistic finance, the Fed is the undisputed heavyweight champ, but I'm guessing the smokin' (i.e., Joe Frazier-like) economic activity in the U.S. will result in more rate increases.
- Poor momentum. It's tech and biotech (though the latter is not at a 52-week high) and that's about it. A review of the 88 Dow Jones industry groups shows that only two -- computers and semis -- are at 52-week highs.
- Forgettable banks. Tech does a great job keeping everyone interested because everyone is overweight in this sector, and its strength makes up for a lot of aches and pains. But the major markets in Europe don't have a large tech weighting in their indexes, so if banks don't do well, Europe's markets act like Chuck Wepner (a.k.a. the Bayonne Bleeder).
- Pickup in the Commodity Research Bureau Index, or CRB.
Despite all of these negatives, the market presses ahead virtually ignoring bad news and embracing good news (a la the employment report of last Friday, although a quick read of
Padinha will tell you it's not all good). It may suffer the occasional bell-ringing, knee-buckling blow. But to beat the champ you've got to knock him out, and that hasn't happened yet.
However, there is an element of Rocky Balboa to this market, too.
- It's off balance. Remember how Mickey (
Burgess Meredith) in the first
Rocky ties a piece of string between Rocky's ankles to improve his balance? Well, the market is off-balance because there's no conviction among institutional investors and this means uncomfortable volatility and generally weak volume. Truly, if everyone is bullish, why aren't most stocks rising? And why, if everyone is bullish, aren't institutions falling over themselves to cherry-pick bargains? The market needs some string.
It's got bad mechanics. Awful breadth is just the beginning. Except for tech and biotech, there's little follow-through for groups attempting to move higher. True, oil-related sectors have done well year-to-date. But these guys are mostly club fighters -- not real contenders -- and unlikely to push the market substantially higher.
It's got one punch. And whatta punch at that. Tech is the equivalent of Marciano's "Suzie-Q," or the leaping left hook of
Floyd Patterson or
Mike Tyson. But something else has to shape up in case tech gets a standing eight-count.
And the call is ... a split decision -- in favor of Rocky Marciano. The Rocky Balboa factors are a concern, but the long-term bullish trends, the ability to ignore bad news and institutional cautiousness say downside risk is limited (see my
first column, which details what I need to have happen in order to get bearish). So right here, the market gets the benefit of the doubt. However, if momentum fails -- if technology gets its clocked cleaned, my bellwether
falters and the CRB rallies further -- the Balboa factors are going to haunt us.
Groups showing the most improvement last week include media/publishing, software, tobacco and trucking equipment.
Resistance for the most important stock in the world, General Electric, will appear at the 120 level. A closing price above here will suggest a target of 130 and it will also be a good sign for the market. If GE cannot break out to a new high, then it's deja vu all over again.
John Roque is the technical analyst at Arnhold & S. Bleichroeder, a New York-based investment brokerage firm specializing in Europe and the U.S., and a frequent guest on CNBC. At time of publication, Roque had no position in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Roque appreciates your feedback at