To The Moon

Learnings and conclusions from this week’s charts: $S&P 500(.SPX)$ $SPDR S&P 500 ETF Trust(SPY)$ $NASDAQ(.IXIC)$ $Invesco QQQ(QQQ)$ $NASDAQ 100(NDX)$ $ProShares UltraPro Short QQQ(SQQQ)$ $DJIA(.DJI)$ $GLOBAL X DOW 30® COVERED CALL ETF(DJIA)$

• Investors are all-in on stocks.

• Surveyed sentiment is consensus bullish.

• Allocations to stocks and bullish bets are extreme high.

• Short positions and bearish bets are extreme low.

• Historically the biggest stocks tended to disappoint after becoming big.

Overall, as noted in the bonus chart segment (subscribe), I don’t know if the top is near or here, but I do know there are plenty of signs that the market cycle is well-progressed and that investors are all on one side of the boat.

It’s rare that markets spontaneously collapse in on themselves though, and in lieu of some kind of excuse or catalyst (e.g. recession, geopolitical shock, crisis, etc) trend and momentum are still up for the time being. So maybe keep one foot out the door but definitely keep watching the charts.

1. Long and Short of it:  Assets Under Management in leveraged long US equity ETFs has reached further new highs (partly the result of market movements, but also investors/traders just going with it), meanwhile leveraged short/inverse ETF assets are back to the low end of the range. I think it would be correct to call this a contrarian signal, and a sign of where sentiment and positioning is at right now.

2. Shorter:  On a similar note, short interest in the major US equity ETFs (SPY = S&P 500, QQQ = Nasdaq 100) has collapsed as basically no one in their right mind would stand in front of the one-way freight train that is the US Stockmarket.

3. Hearts and Minds:  Another angle on it, this time looking at the more erratic surveyed sentiment in the red, and portfolio allocations to equities in the black (with margin debt vs market cap in the blue). On all fronts the data is consistent; investors are all-in on stocks both mentally/emotionally and physically as far as positioning or actions go.

4. FOMO on Wall Street:  This one is kind of interesting for 2 reasons. First is how consensus it is to be in love with NVIDIA (near 100% of analysts have buy ratings on it). Second is how no one seemed to see it coming… not long ago less than a 3rd had buy ratings on the thing. Goes to show it’s only obvious in hindsight (but then also that reminds me the saying from the late great Joe Granville: “if it's obvious, it's obviously wrong”).

5. Record Euphoria:  The Euphoriameter combined sentiment/cycle tracker reached a new all-time high in June. Interesting point though, breaking out for this thing is often actually a bullish sign (whereas peaking later in the cycle after an extended move: that’s when it’s bearish).

6. Smaller Smalls or Bigger Large?  You might argue this is also a sentiment or cycle metric in that small caps have become much smaller than usual in market cap % terms simply because of the band-wagoning into big tech. It also happens that the peaks and troughs in this indicator have also frequently lined up with peaks/troughs in small vs large relative performance.

7. Earning it:  If small caps are to sustainably outperform vs large caps there’s going to need to be a shift in earnings performance — and that happens to be exactly what analysts are anticipating. While in 2024 large caps are set to significantly outperform small caps on earnings, small caps are set to outperform large in 2025-26 according to analyst consensus estimates…

8. Big… Disappointment: As you might expect, on the journey to becoming a top-10 stock, performance prior has been amazing (well duh, how else do you become the biggest?!). But equally you may also be unsurprised to learn that performance *after* becoming one of the top 10 stocks has historically been dismal on average.

Makes sense, it’s harder mathematically to grow fast when you’re already king of the hill, you also become a target for competitors, and often that journey involves significant valuation increases (as people over-extrapolate and over-value the company). Maybe informative for the current surge in largest caps.

9. Doubling Up:  Interesting pulse check, this one shows the annual number of stocks in the S&P500 that saw their stock price double. This indicator is going to go really high when you have a crazy bull market (e.g. 1999) or a sharp recovery from a deep drawdown (e.g. 2009). Curious that there wasn’t many doublers in the early-2000’s or 2010’s (is that an indexing/passive investing thing? I wonder — all stocks are treated equal by passive as money flows in and out according to market cap).

10. Best and Worst: You might have seen a version of this that says what happens if you miss the 10 best days and then concludes that you shouldn’t bother trying to time the market or even think about prudent risk management (let alone diversification and asset allocation). But they rarely show you what would happen if you missed only the 10 *worst* days, or better yet, what happens if you missed both (better than buy and hold — partly a sequencing thing, many of the best AND worst days happened during highly volatile/crashing markets). Critical thinking reminder!

https://www.chartstorm.info/p/weekly-s-and-p500-chartstorm-23-june-c4b