Hi friends,
I’m currently on holiday, so this report will be rather brief.
In essence, you can read any of the reports from the last 3-5 weeks and little has changed. More and more die-hard bears are switching teams to join the bull camp, and more and more media outlets are declaring a new bull market, largely based on a thin rally of AI-exposed mega-caps and a technical toggle. In essence, more and more people are forming the same consensus opinion (also seen in extremes in VIX, P/C ratio, sentiment indicators, etc.).
Problem is, bull markets don’t start with everybody declaring a bull market, and panic-buying equities. They tend to end this way, and start with widespread fear, hesitation and disbelieve. The more people are moving to one side of the boat, the more likely it is to roll the other way.
However, such largely blue-chip and low-quality-stock blow-off rallies can run for quite some time, in essence until all the positioning has taken place and until all the bears are squeezed out, converted to buying bulls, or both. There’s still a relatively large number of market actors betting against this rally, which means further upside is by no means impossible.
I won’t go into too many comparisons, but as you can see, even on the playing field of large-caps, an equal-weight (RSP) S&P500 is not confirming the cap-weighted version (SPX).
This dynamic is visible across the entire market, whether you look at micro-, small-, mid-caps or across exchanges (e.g. NYSE Composite) – the Nasdaq Composite & SP500 (both cap-weighted), spear-headed by its narrower Nasdq-100, is all that is driving this market up, confirmed by nothing as of yet.
This may still change, however there are no actionable new strong stocks which leaves me under the impression that there is no opportunity in, and only limited life expectancy of, this market. So far, the obvious tip of the iceberg is moving right while the vast lower part is tilting left.
More complacency and euphoria
Gambling in low-quality AI stocks persists (AI, SYM, OPRA, SDGR, and more), while the somewhat better stocks sputter when trying to move out into all-time highs (e.g. PANW, ON, AEHR, ANET).
To boot, there’s few useful action in great-quality stocks (e.g. LNTH, another failing move out of a digestion in SWAV) – although some new names are appearing (e.g. IOT, ACLS), chart action and number of stocks suggest that the real capital firepower of the market is not in the mood to splurge into this market.
Gold seems to be rolling over for the moment, along with Chinese equities – two of the groups that had been shaping up over the last half a year or so. Japan however is stronger than ever, and lots of conducive opportunities are looming.
If buying ETFs, AAPL, MSFT or NVDA works for you, be my guest. But you won’t make the real money that you could get in other places, and the risk of being in US equities is rising the more people are drawn into this crowded market. Tread with care.