Even if You Don’t Go Home… Go Big

                                                                                                

DJIA: 47,522

Even if you don’t go home… go big. The key to a healthy market is participation. It is as much about the average stock as it is the stock Averages. Meanwhile, down days, even bad down days happen. It’s just a part of the business. It’s what we call bad up days that cause problems. Those are days when the strength lies in the Averages, while participation is lacking. We’ve seen a couple of bad down days recently, and almost surprisingly the market has managed to snap back respectably, that is, with ample participation. Just last Thursday and Friday were two such days. Monday and Tuesday, however, proved different. The Averages were strong, the average stock measured by advance/decline numbers were not. A couple of days are just that. Normally these would be a warning sign, unless this is a bubble, or on the way to becoming one.

They tell you this is not a bubble, the hyperscalers make money and the dot-coms did not. True, but the nifty-50 also made money, and certainly were a bubble. Perhaps more to the point, by the time they start giving names to things, hyperscalers, nifty-50, dot-com’s and don’t forget, Japan, Inc., you are at least teasing a bubble. Worth noting too, bubbles are not about earnings which in turn are about companies, bubbles are about those pieces of paper they call stocks. Bubbles are not about margin these days, they’re more about triple levered ETFs, and stocks which eventually simply find themselves overowned. Of course, the key word here is eventually. And on the way to eventually the market look will change. The market Averages will go on with less participation. The recent look will become more common.

If this scenario does play out, the Magnificent 7 should be given a close look. If you look at a chart of the MAG7 ETF (MAGS – 67), not surprisingly it differs little from the NASDAQ 100 (NDX – 25,735). It’s a bit surprising, however, how little it actually differs from the S&P 500 (SPX – 6822) itself. This seems another take on the extent to which large cap Tech has come to dominate. And for the S&P it’s almost self-fulfilling. ETFs like the SPDR S&P 500 ETF (SPY – 680) theoretically have 500 stocks, but 8% of any buying goes to Nvidia (NVDA – 203). You’re not exactly getting the diversification you might have thought. That said, the S&P Equal Weight ETF (RSP – 188) is lagging the market cap weighted S&P but not by as much as you might think. Any extreme here would just be more evidence of a bubble.

Gold and Bitcoin seem back to their Superman/Clark Kent pattern – never seen together, or at least never seen going up together. Gold looks in need of a rest, Bitcoin has improved. As speculation grows, it’s hard to believe Bitcoin won’t have another run. In that regard, the same seems true for the Quantum stocks, if you care to make the leap. Playing the role of Gold this week was Uranium, particularly Cameco (CCJ – 105). Biotechs still act well, though Intellia Therapeutics (NTLA – 12) managed to find the loaded chamber that comes around when investing here. The reports from big Tech this week should prove a test for them and for our “go big” thesis. It’s not the news, it’s how the stocks react to the news. That’s what we like about Tesla (TSLA – 440), it seems to make its own news.

Because of the aftermath, bubble is a dirty word. Until that aftermath bubbles are rarely recognized and if so, well too much ahead of their demise. And why not let the good times roll, and while rolling they are indeed good times. Who is to say just what defines a bubble, and whether or not this is one? We can only say we hope it is in the sense it is likely early and would explain a lot of technical problems. Lagging participation is never a good thing, but in a bubble get used to it. Then, too, bubbles are all about being in the right stocks, in this case big cap stocks, and primarily big-cap Tech stocks.  Though not the best investment strategy, there’s always hope, look at the not very AI Caterpillar (CAT – 583) on Wednesday. Or look at Eli Lilly (LLY – 845) and other parts of Healthcare like Thermo Fisher (TMO – 556).  Meanwhile, Staples barely have a pulse, and except for his own stock, Jamie seems to have rained on the Financials.

Frank D. Gretz

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