In my first substack post I go over the recent action in the market and why we may be at a critical spot.
It comes as no surprise to anyone to say that we have been in a bear market since late 2021 / early 2022, with former market leaders such as TSLA and ROKU topping even earlier where most then went on to decline around -80%.
Since this bear market began, breakouts have been isolated and unlike recent times, the successful ones would go on to pop and drop most often. Outside of energy (mainly oil) there has been little to no sustained group strength that would be required to fuel the start of a new sustained uptrend, but is that changing now?
The YTD Performance of sectors tells the story:
In contrast to energy being the only strong group, we can now see some strength being dispersed throughout the following potential leadership groups (PLG) as breadth may be improving on a month-to-date basis:
The recent strength in certain industry groups has been most apparent amongst:
Solar
Medical
Healthcare
The fact that the above 3 are at or close to 52-week highs shows strength and demand
Pharmaceuticals / Biotech
Which may be showing a shift from the defensive industry groups to more speculative ones.
Not withstanding the positives of improving breadth via different PLGs, there is still a significant amount of distribution throughout the market. Along with this, there is a behemoth of overhead resistance for the majority of stocks and so it is very important to focus on stocks making new highs. This is where the true market leaders emerge from and go on to make significant gains.
Pros:
Extremely oversold
The McClellan Oscillator recently gave the 2nd lowest reading since the COVID crash
Negative sentiment
Group strength increasing
Cons:
Seasonality
September is typically the worst month of the year
Overhead resistance
After all, does it really matter? Any sustained uptrend throughout history began with a rally, but not every rally has led to a sustained uptrend. That is why it is so imperative that our first priority is to unequivocally manage risk at all times by means of progressive exposure and understanding the environment we are in.