1/ Opinions vs. the Market
2/ S&P500
3/ Trend “Predictors”
4/ Stocks, Stocks, and Stocks
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1/
Opinions vs. the Market
Is the market topping? Is a recession right around the corner? What about the upcoming inauguration – that’ll probably cause the next leg down, won’t it?
Political opinions have no place in investment decisions. Same goes for any other “opinion,” for that matter.
The market doesn’t care what you think about:
- Historical market valuations
- Inflation
- Interest rates
- The Fed, or
- Market concentration in mega-caps and tech
The market… doesn’t… care.
Instead, what we need to do as portfolio managers is to allow the market to tell us what to do, not the other way around.
So, let’s take an objective look at what’s going on right now, starting with my “Inverse Traffic Light” chart of the S&P500, and see if chicken little even has a dog in this hunt.
- The stock market still remains in the “Green Zone,” which currently sits above the two summer highs – as well as below the two fall lows – and this is perhaps in spite of the fear mongering financial news that’s being thrown in your face on a daily basis.
- The bottom of the “Caution Zone” for the stock market still resides at the spring 2024 lows, which took place after a multi-week correction to the tune of just over -10%.
- …and this is still where the “Danger Zone” sits, just south of 5,000 on the S&P500.
2/
S&P500
For the nay-sayers out there, yes… there are still some breadth issues that exist when looking at things form an intermarket analysis standpoint.
Furthermore, if we’re just keeping it simple and focusing on the S&P500, there is a negative momentum divergence going back to summer of 2024 that is still valid; and the market would need a nice, sustained, multi-day (if not multi-week) rally in the short-term to negate what I’m seeing in RSI (in the lower-pane).
3/
Trend “Predictors”
That all being said, look at the chart below…
The SPX is trading above rising 150 and 200-day moving averages, and it’s only barely bumping its head underneath the 50MA. Anyone who says this is a major market top is a “trend predictor,” not a trend follower, and their “analysis” (if you can even call it that) would be no better in Vegas than it is in the markets.
Again, keeping it simple, look back to 2021-22 and notice how the market fell “below water” (i.e., below the 200MA) followed by two failed attempts to come up for air. What we’re seeing in the market right now doesn’t even remotely resemble early-2022.
4/
Stocks, Stocks, and Stocks
Last, but not least, here’s another simple look at the major asset classes and a longer-term ranking system. The S&P500 is unequivocally the #1 runner, followed by international stocks, then small caps and finally, commodities.
Said another way, “stocks, stocks, and stocks” are in the #1, 2, and 3 slots from a relative strength standpoint. How in the world could this be a bad thing?!
An early mentor of mine once told me that “As soon as you ‘think,’ ‘like,’ ‘hope,’ you’ve already lost.” You can’t say things like:
- I really “like” this stock,
- I “think” the market is going to head lower from here, or
- I “hope” this stock comes back – I’ll sell it when it gets back to <this price>.
Instead, you have to invest your money based on the current prevailing market landscape/climate and trends. Sure, you can add relative strength, volume, and momentum to your analysis. That’s totally fine – we do, but I digress.
As the age-old saying in technical analysis goes, “The trend is your friend, ‘till the end, when it bends.”
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Originally posted on 17th January 2025
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