When Does This Bull Market End?

The new highs lists all peaked in Mid-December. And since then it's been, at least, a stealth correction underneath the surface. At worst, the beginning of something larger that could last into Q2:

There are divergences out there for sure, and they're starting to add up.

We came into the year pointing to what it would take for us to start to get a lot more bearish towards equities.

And we've already checked the box on some of them, including strength in the US Dollar, which we've seen all year.

Emerging Markets currencies have been a tremendous leading indicator for us, as you guys are well aware. It's been very helpful in convincing us to be buying stocks so aggressively last year.

But now this:

If EM Currencies are below their July highs (when stocks peaked), then the biggest risk for stocks is lower or sideways, not higher.

Meanwhile, here's another big divergence. We haven't seen Consumer Discretionary roll over vs Consumer Staples like this since the end of 2021.

Some people like to point out how top-heavy these market-cap weighted indexes are, with Amazon and Tesla dominating the XLY index, for example.

But when you look at the equally-weighted ratios, you're going to see the same divergences.

So it's not an, "Amazon and Tesla" thing. It's a Consumer Discretionary rolling over relative to Staples thing.

Remember, every big market correction first starts out as a small one.

But not every small correction turns into a big one.

So what would it take for this 6-week stealth correction to turn into something more powerful?

I still think it's these.

We're looking at some of the most important groups of stocks in the market. Maybe even THE most important groups.

Notice how each of them: Broker Dealers, Industrials, Semiconductors and Homebuilders are all still holding above those former highs:

If this is more than just a "stealth" correction, that has mostly gone unnoticed, you're going to start losing these leaders one by one.

You haven't yet.

But the stage is set.

One thing I will say is that the way we've approached the market has already been different for most of this month, compared to how we were approaching things in November, for example.

During that face ripper of a rally late last year, volatility was super low. So we were just long stocks. Easy. Simple.

But this month, with volatility higher, things are not that simple.

Even with the VIX still down near lows, you've certainly seen a pickup in implied volatility at the individual stock level.

So we've taken advantage of that by selling premium to collect income.

We couldn't do that before.

The question now becomes whether we keep selling some premium while volatility is elevated, before reverting to last year's strategy of just getting long?

OR, do things get progressively worse, volatility spikes, and our strategies actually turn much more bearish?

That's what we're asking ourselves heading into February, which is historically one of the worst months of the year for stocks.

This will be a major topic of conversation this coming Monday during our LIVE Monthly Strategy Session.

Our new trade ideas and adjustments to prior trades will be dependent on these factors above.

Rug Pulls don't happen overnight. They first need to be set up. I've seen it happen a million times. And that's helped me be more prepared.

Premium Members make sure to register here for Monday February 5th. We'll get going LIVE @ 6PM ET.

If you have any questions or need access, please email Mary and she'll set you right up.

Let me know what you think!

JC