Hello friends,
This report will be short, since nothing fundamentally has changed in the stock market over the last week, at least nothing has popped up we haven’t seen in the last half a year or so.
The week was largely led, once again, but the good old mega-caps being bought up by those eager to not miss out on the great era of AI, while the rest of the market has sagged back, indicating continued thin breadth of the rally; compare the NASDAQ with the Russel 2000 (mid- & small-caps IWM) or the S&P600 (small-caps, SPSM) below. While volume was stronger at the begin of the bounce, most likely due to a concerted short-squeeze rearing its ugly had, volume is waning.
A ‘Santa rally’ we still might get, but whether it will be a smooth ride is highly doubtful.
Though the fierceness of the AI euphoria has dialed down, we are far from out of the woods – MSFT and its new/old buddy AVOG have once again made an all-time High confirmed by nothing but each others doubtful presence, while a lot of money has flown again in FOMO stocks deeply buried under overhead-supply such as DKNG or PLTR.
Amateurish retail traders/’investors’ and fund managers are piling into a select few names, while the rest of the market is once again stalling. The number of stocks in free price exploration (near historic High prices, green line on chart below) is not expanding, breadth is contracting, all while sentiment is becoming complacent and over-bullish again (various bull/bear surveys, S&P500 implied volatility).
Essentially, we’re back at the July top – but even more snow has melted than even then.
Leadership remains unchanged
Leading industries, as uninspiring as they are, remain largely unchanged – capital goods, construction, insurance, some biopharma, and resource. Specifically coal is leading, while oil & gas stocks have not been able to make a comeback with crude oil futures sagging back and for the moment remaining in a long-term downtrend. I’m sure all the equity bulls declaring that a recession will be avoided will be pointing back at the 2022/23 oil graph in a year or two to declare that ackchyually the signs had been there all along …
Homebuilders have shown a bit of strength lately (again), although large group confirmation is missing – at least as of yet. Have a look at Pulte or Toll Bros:
One group flaring up (again) though does not make for a strong market. High-quality leadership by and large is best described by the word ‘absent’, an ominous sign for stocks for now.
Among the stronger stocks are ANET, CELH, VRT and now DUOL – only the latter has started showing definitive signs of strength lately, but even all together they are simply not enough to declare this point in time a looming opportunity to buy stock. Low-risk entry points are nowhere to be seen, trends cannot be established or range minute percentage extent, and group confirmation is lacking.
For now, speculation in the trends of leading stocks remains out of favor due to the off-risk nature of the environment we’re in. You should be largely sitting in cash, or using the latter for income strategies. There is no opportunity right now.
So long,
TGS