To The Moon

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

• Risk pricing is extremely calm (credit spreads, VIX).

• Stock correlations are extremely low (a risk flag).

• The market almost* never peaks in June (*only once before).

• Tech stocks are expensive vs history and vs the rest of the market.

• Buying the biggest stock has historically been a poor investment.

1. The Calm

Volatility is low and credit spreads are tight. This is a deeply calm risk-on market. We are also in the neighborhood of where both of those things tend to find a floor…

2. Low Volatility Regime

But as the very sensible Mark Ungewitter observes, “low-volatility regimes can last longer than you think”. In other words, low volatility itself is not a bad thing, but low volatility when things are deteriorating and risks are underestimated +rising: that’s bad, that’s when it’s called complacency.

3. Low Correlations

On the other hand, periods of low correlations do not tend to last long, and are often a flag to pay closer attention to risk.

n.b. the chart shows S&P 500 stock correlations *inverted* — it works as a buy signal when correlations spike (which is typically a situation when investors ‘sell everything’).

4. Stocks Outperforming the Index

…are at extreme lows (another risk flag?). This chart prompts Richard Bernstein Advisors to remark, “investors who think today’s market is somehow vastly different from 1999/2000’s bubble simply aren’t paying attention.” I am inclined to agree.

5. Fun With Analogs

OK, so analog charts are troublesome for a number of reasons (curve fitting, bias confirming, redrawing, etc) — but, they can serve a function when the past analog that you are comparing to shares true similarities. In essence it serves as a scenario, a possible pathway, and if the period of comparison is well-selected it can be a useful lens to view risks and possibilities. Anyway, I think it’s fair to say that NVDA is definitely echoing dot-com bubble energy on a number of fronts, and here’s a reminder of how things can unfold (possibility, not prediction).

6. The Biggest Stock Sucks

This interesting chart from the latest Mauboussin paper shows that in the past the biggest stock has historically not been a good investment (although number 2 and 3 can be decent, yet mileage varies notably through time). NVDA is not quite number one, but very close, just ahead of AAPL now, but still behind MSFT (the 3 top stocks).

7. Not Dot Com

(not yet, but getting closer)

One thing that is objective about this chart is that tech stocks are expensive vs history and expensive vs the rest of the market. One thing that is entirely open to judgement though is whether this marks a peak like in 2021, or a path to higher glory like in the final frenzied stages of the dot com bubble.

8. Bigness Through the Ages

A reminder that it’s not actually too abnormal to see the top 10 stocks being a big chunk of the index market cap, and it’s not even necessarily a bad thing or warning sign. Kind of logical to see when new industries and technological innovation and adoption processes are underway.

9. When Will the Market Peak? 

Another bull/bear Rorschach test — the bullish take = stocks almost never peak in June (only once: June 1948), and therefore they wont …the bearish take = June is underrepresented, and is due for another peak. Either way, it sure is interesting to note that statistically the highest odds of a peak has been Dec (followed by Jan, Nov) — so bears may need to wait a little longer.

10. Picking up Pennies

GRQ (Get Rich Quick) culture is alive and well and making its way into the penny stock arena in hopes of quick gains. Call it a risk indicator, maybe even a fraud indicator as penny stocks are notorious for pump and dumps.

https://www.chartstorm.info/p/weekly-s-and-p500-chartstorm-9-june-631