Hello friends,
Due to the shortened week, this report will be a short one. Though trading erratically and without the strong conviction I like to see, it needs to be acknowledged that many of the indices representing mid-, small- & microcaps (e.g. RUT, SPSM, IWC) are showing more signs of trending above previous Highs and/or are reversing their previous long-term downtrends, confirming the trends of the popular indices SP500 & Nasdaq Composite (COMP) – at least so it appears for the moment.
This confirmation still has a big question mark behind it, as it comes almost a year behind the large-cap indices, and is fraught with weak price action in both the indices and some of the better leading stocks (read further below).
However, we must take what the market dictates at face value. Indices are in an uptrend, and the final arbiter is ‘can we make money‘, i.e. how are the leading stocks behaving.
Leading opportunities?
Without doubt there are some great stocks out there right now in the US equity space – check out RXST, ATMU, CEG, VST, VRT, ELF, NXT, and a bunch of others. Strong stocks in strong trends exist, and yet most of them are extended, some severely, asking for nothing short of a break. The historic odds of experiencing a reaction period in the indices (a ‘correction‘) is just approaching 1:1, meaning we’re around the historic median intermediate term up-leg extent & duration of the Nasdaq. From now on, the odds of a pullback are rising continuously.
Extended stocks are high-risk trades where the momentum buyers quickly burn their hands on. Awaiting low-risk time windows is essential, however even the good stocks that have shown such recently (i.e. Duolingo/DUOL, Samsara/IOT) have not been successful moving out of digestions, in the case of DUOL not at all. Again, vigorous buying demand is absent – since the general market is in such a strong trend, why aren’t these going postal?!
ELF and ARM are digesting right now, however failure of previous names to continue their uptrend should put a dampener on anyone’s willingness to expose large amount of capital on a play. As well, recent climatic action in SMCI does not inspire more confidence.
The market remains heavily concentrated in the big-tech mega-cap AI hype names of MSFT and NVDA. They’re the main drivers of this trend, and although some strong leading stocks exist, most are nowhere near buyable. A large majority of Industrials sluggards along with the leading stocks appear to drift along the indices – not as a roaring bull herd, but rather a bunch of cattle sleepwalking. I will expose any capital only on great action and even then with tight risk control.
So long,
TGS