I’ve been tough on US equities lately. But it’s really nothing new.
Since last summer, I’ve been writing and talking about taking profits in the US - particularly in US growth - and redeploying that capital overseas.
But the truth is I’m rooting for US stocks. I always am.
So, let’s talk about what I need to see to get excited about them again.
In a few notes last week, I stressed the importance of registering two consecutive up-days at the index level. We’re not going to establish a tradable low without some bullish follow-through.
My attitude has been, “talk to me once we get back-to-back green candles.”
And while I’m really not impressed by the action at all, we did achieve this simple milestone earlier in the week. Congrats to stocks!
The bottom line is this is still a “show-me market.” Let’s discuss what bulls need to see next.
It’s all about growth stocks when it comes to the US. Whether we’re talking about the broader market or the major averages, that’s the bulk of it.
It’s what people own. It’s what determines their performance. It’s what investors care about.
The largest, most important stocks. The exciting stories. The main drivers of the indexes.
Figure out the direction of US growth, and you’ve figured out the direction of the overall market.
So here’s a current look at mega-cap growth and speculative growth.
I like to think of the Magnificent Seven and the ARK Invest funds as big growth versus little growth.
Quality growth versus non-profitable growth.
Actual growth versus promised growth.
The best stocks versus the worst stocks.
The most popular stocks versus the animal spirits stocks.
Safe versus spicy.
It’s also the stuff that drives the market versus the stuff that tells you about the market.
My point is there is a ton of information in both of these niche growth indexes. I could literally look at just these two charts to make a call on the next move for the broader market. They are that important.
So, it’s really this simple for the bulls… these multi-week coils better resolve higher.
These bear flags need to fail and kick off counter-trend rallies. And it better happen soon. Every day it doesn’t, the odds increase that we experience further downside.
And even when it happens, it’s only the beginning. Then, we need to see how far they make it.
What kind of damage is undone on these theoretical rallies? What kind of levels are reclaimed?
How about those August VWAPs on the above charts? Do we get back there?
And in the event these flags resolve lower, look out. Downside risks remain elevated, and we are nowhere near out of the woods.
I’ll report back soon and let you know how we make out.
In the meantime, sign up for Breakout Multiplier risk-free and see how we’re navigating this corrective period. We dipped our toes in on some speculative growth longs today. We still have heavy exposure to commodities and international equities. And we plan to keep our uncorrelated exposure strategy going as we take some shots on US stocks again.
