Spread your wings

December 7, 20233 Comments

I don’t know about you, but when I drive, I tend to spend most of the time looking out my front windshield. Sure, we all look in the rear view mirror for “situational awareness”, but its the forward vision that’s going to help us the most when planning to get home safely. In stock investing, like with driving, we need to look forward for clues of the best path to follow. Looking forward can alert us to market opportunities or problems. When driving, looking forward will alert us to closed roads, or Christa Freeland driving at 142 km/hour endangering our lives. Its all about seeing what’s coming. Today, lets look forward to potential rotation happening on the markets.

Markets are diversifying

One of the signs of a market that is potentially growing healthier is through its breadth. Breadth simply means participation by the broader collection of sectors and/or stocks – or lack of it. When you have a first quarter like we had in 2023, where the Magnificent Seven AI stock soared, leaving all other stocks in the wind, you did not have the making of a sustainable rally. Sure enough, that goofy rally (which I warned you about) didn’t last. We had a nice 10% correction this summer. More importantly, the market lost some of its froth for the AI stocks. And that’s healthy.

Below you will see the full January – November sector performance chart for the SPX. After the AI buzz died down, the only game in town was energy. That was not healthy. At ValueTrend, we sold more than half of our energy stocks into that silliness – again, something I addressed on this blog.

Take a look at the past month (early Nov- to now). Note how much more diversified the performance is getting.

My thoughts: watch for the emerging sectors noted above, rather than looking in your rear view mirror at what worked in the past.

You heard it here first

I’d like to note that Craig and I were amongst the first, if not the first, analysts to point out the potential for a sideways market for the coming decade, and stagflation.  This, starting with our research report we published early 2022. Still, its good to see others catching on.

3 Comments

  • Hi Keith,
    I’m hoping that you can share your insights to help clarify the direction of the markets.
    As you say, ignore the headlines!
    In this blog, you point out how the markets are broadening out, which is bullish👍 But then I look at the VIX, and it’s flashing a warning being only 12.35 as I type this message. What does your Bear-o-metre suggest?
    Is the pullback likely to happen in December still or closer to March if investors don’t get the widely anticipated rate cut?
    Also, you note how oil has pulled back, but the seasonality for oil is approaching. Is the pullback a buying opportunity or are you leaving it behind and just looking forward to the sectors you noted in this blog?
    Thanks, and happy holidays!
    Wendy

    Reply
    • Wendy–correct, the VIX is in my complacency zone. I will post a Bear-o-meter update this weekend. Markets are very focused on rates right now, as you note. So the saying “dont fight the Fed” seems to be in full force. Craig and I were discussing the insanity of this overbought market – without (what to me should be) an obvious technical correction. We noted that since December began, the markets are actually pretty flat. Most of the rally occurred in November, now its stalling. Will this be a sideways correction of the overbought status, vs a pullback? I am scratching my head on this, as you are. I do note that, once you get through the Santa rally (ending first week of January), you are looking at pretty lame performance normally–and even some downside potential. The juice doesn’t return to the markets until March in most years. So, perhaps that’s when we see a correction? So many questions!
      Re oil–we hold a bit, as noted, but we wont buy more until I see solid proof that the support levels are holding. I really like energy–for the long term. I want to get back into the trade (in a bigger way than our smaller exposure now). Typically Feb. is the time to buy. But I’ll buy earlier if I continue to see proof that the recent blip is more sustainable.

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

Never miss another blog post!

Get the SmartBounce blog posts delivered directly to your inbox.

Topics

Topics

Recent Posts

SECTOR EARNINGS UPGRADES

Long bond setup

NAZ futures

Opportunity in the fall, gold, and why risk-on matters

spx

Just asking

SPX va 40 month SMA

An oil trading opportunity?

nyse AD

Bear-o-meter – Investment Analysis – July 2024 – Reads a 3

TOBINS Q

Contest winners and an alarming market indicator

Keith's On Demand Technical Analysis course is now available online

Scroll to Top