Hello friends,
The Investor’s Intelligence bull/bear ratio has now exploded to 4.1. This is based on a survery of financial advisors, newsletter writers and similar personalities in the US equity space. For every 4 bulls there is only 1 bear, and for the total of opinions (including those with a neutral assessment), >60% of advisors are pushing an at least strong if not very strong bull narrative. This value is now higher than sentiment in 2021, including the top of the EV-, stay-at-home- and meme-stock era.
Overheated for sure – remember that consensus usually sets the condition for a turning point in the at least intermediate-term future. Of course, such levels can stay that high for months, but they always eventually precede a mean reversion both in sentiment and index price levels. The markets have cooled a little after experiencing a couple of air-pockets lately, specifically in the mid-/small-/micro-cap space. Take a look at the choppy trading of the Russell 2000 (RUT, small & mid-caps) or the IWC (microcaps) which are technically in the process of confirming the uptrend of the SP500 & Nasdaq Composite (COMP), however in practice price levels are reversing every time so far they have attempted moving above the December 2023 Highs (and IWC reversing its downtrend with higher Highs):
As you can see a prolonged uptrend on the Nasdaq and the SP500 is possible without confirmation by the mid-/small-/microcap segements, however the latter are required to give a market uptrend a richness of new leading stocks that strong profits can be made in.
This market remains led by value plays from industrials & construction groups, as well as big-tech sluggards such as NVDA, AMD, MSFT, AVGO pushing up Nasdaq and -100, although some pronounced divergences of weakness have shown up in AAPL and GOOGL of late. To boot, selling sessions (down-days with increased volume) on the Nasdaq have risen to dangerous levels in the last 5 weeks, which is usually a sign of a market due for a correction.
However, the low quality of the market has been our constant companion for quite some time, and an uptrend is an uptrend – let’s look at what opportunities the better leading groups of this market offer to a speculator.
Leaders extended, choppy
There are a few stocks interesting in this uptrend, though most are drifting up with the indices and are reluctant to form constructive digestions. Take a look at VRT for example, which is a great prospect should it finally take a breather:
ELF might be closer to yielding a low-risk entry point, but again the volume profile is not too inviting. I remain very careful with new exposure, as recent moves out of digestions in DUOL or IOT, some of the better names, are stalling and have not performed as they should in a strong market.
Equally, the initially very strong move in coal stocks appears to have run into a ditch for now (e.g. AMR, CEIX), unable to attract buying demand at new High price levels:
Though the indices are trending up and some stocks are showing strength, the overall picture is one of reluctant buying, selling supply coming to market where there shouldn’t be any, and choppy trading. This is not an “animal spirits” market, and though there is a potential for money to be made, it comes at increased risk and requires an ability to withhold significant volatility inhibiting proper risk management a lot of the time.
Japan, crypto, gold
One move that has shown significant strength over the last few weeks and months are currency safe-havens (i.e. BTC, mirrored by tons of alt-coins including ETH, SOL), and gold, breaking above a multi-year high and a decade-long consolidation phase, though gold miners/explorers are largely lagging. Global fears of dollar devaluation and sticky inflation have led to flight into traditional alternative store of value.
I believe a new bull market in crypto is underway, though most coins are a extended right now and require some digestion. But the move is undeniable and broad, and carries with it many strong smaller coins near all-time Highs that could be traded (e.g. PRIME, GNOSIS, INJECT). A gold ETF or options could represent a slower-moving inflation-combatting position here.
The Japanese stock market has just entered all-time Highs (quite a feat, after going sideways for 34 year), and for now is showing no signs of slowing down – here, tons of stocks are behaving strong, quite frankly too many to list here. Some top out (e.g. 1514), but are immediately replaced by new prospects. My current favorites are 8596, 3687, 9211 or 3133. Only the future will show which are the strongest leaders and how far they will run, but you will have to get wet to be able to ride the wave. I will expose gradually along observed success and general traction.
So long,
TGS