Increasing Complacency
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Last Week I Told You
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And We Got A Swift Get Away Into New ATHs
We are drifting nicely up and away from the previous ATH level
The rate of ascent is accelerating up, which is something we need to monitor closely
We are stretched on the upside and overbought — what would be logical is a backtest of the breakout level
But as we know, the market is not logical, and we can continue drifting up, far longer that anyone expects.
Testing the first significant support zone would be normal and likely, but falling into the danger zone would warrant extreme caution — because it opens up a scenario of a double top.
Today our main focus will be searching for signs of worry, signs of an impending aggressive decline. So we can be positioned correctly in the market — and avoid participating in ugly surprises.
Today’s Agenda
Breadth observations
Being overbought is not a sell signal
IPOs
MAGS
Small caps
Retail getting carried away, and smart money selling into strength
Buying exhaustion
Hedge funds not convinced
VIX hedgers changed character
The best way to know the direction is to study retail
Complacency
TSF — community trade plan
Now it’s more important than ever, to stay aligned with the market. Being overexposed at the wrong time can be costly.
Since a pullback from overbought levels can get nasty.
Lets dive under the hood looking for clues of where we stand and might be heading.
Finally A Broadening Of The Rally
With a real breadth thrust in longterm breadth, confirming the recent moves in the major indices.
This is exactly what we want to see, and what I have said has been lacking in the advance, until now.
Since longterm breadth is improving from low levels, this can be very bullish, since there are many stocks that still are turning up.
And they can act as fuel, advancing the broad market further.
% Of Stocks Above The 200 Day Moving Average With The S&P 500
This is the ideal action to see, when gaining confidence that this is the start of a new bull market.
After this breadth thrust up, we will start paying more attention to when we arrive at levels of overbought, to align us correctly in the market.
We still have room to run if we look at the longer perspective.
But In The Medium Term Perspective We Are Severely Overbought
Which actually is normal, when the market rallies and breadth broadens. We usually see the same thing at significant turning points, like for example as we bottommed after the 2022 bear market.
When we are short and medium term overbought, like we are, you should be careful and risk conscious. Because the market usually at least pauses or declines. And since most stocks follow the movements of the major indices, this is something you should be aware of.
This does not mean that we must crash straight down, just because we are overbought.
We are overbought because the market is strong, that is not a sell signal.
But being too aggressive when we are unnaturally overbought, can turn into unpleasant reversals in growth stocks.
A decline or pause above the breakout level in the major indices, seems likely in the short term, since we are overbought and need to rest.
A Brief Look At IPOs — Still Signaling Risk On
So far IPOs are still signaling a risk on environment in play.
They are still however underperforming the market, after they outperformed hard on the first thrust up.
If they can gain traction and start outperforming again, and break out to new ATH — that would be a very encouraging risk on sign.
MAGS Almost Convincing Me
Just a last push in please, and confirm that your longterm uptrend is intact.
The market needs MAGS, for us to advance in a sustainable way.
And Small Caps Reclaiming The 200 Day
A big move, and further evidence for us to be confident in the emerging bull market.
Because small caps lead the advance, and lead the decline.
We Should Have More Gas In The Tank In A Longer Perspective
When looking at the amount of buying climaxes in the Nasdaq 100, we see no clear evidence of significant buying exhaustion behavior.
This chart shows the number of stocks in the Nasdaq 100, making a new 52 week high, but closing below that level during the same week.
Signaling a buying exhaustion and climax, with selling pressure coming in immediately after a new ATH.
When many stocks exhibit this behavior, it is usually a sign of a significant market top.
(Source: SentimenTrader.com)
As you can see, before the 2022 bear market we saw clear signals of the un-health of the market. With extremely high levels of buying climaxes and exhaustions, signaling that the end of the bull market might be approaching.
In late February this year, we saw some minor signs of buying exhaustion, but since this bear market was a man made crisis — I believe the dynamics of that top was different.
As of now, we are not seeing elevated levels of buying climaxes, that we usually see at a significant market top.
Even though the moves seem excessive, the new ATHs are held and we are not seeing buying exhaustion.
What we will monitor as we go along, is signs of repeated exhaustion like we clearly saw before the 2022 bear market.
If we study the broader S&P 500, we see the same observations as in the Nasdaq 100 — no signs of buying exhaustions yet.