Bull Market Two-Year Anniversary

June 4, 2024

Next week marks the 2-year anniversary of this Bull Market for stocks.

As we've mentioned many times, the S&P500 didn't bottom out until October of 2022. But it was already a bull market at that point.

The bottom for the prior bear market was in June of 2022. That's when the majority of stocks bottomed.

By the time the S&P500 hit its final low in October, there weren't many stocks at all left going down. Most of them had already been making higher lows and higher highs.

Coming into this year, we made our list of the most important groups of stocks that were already exceeding the prior cycle's highs.

The thought process was that if these groups were above their late 2021-early 2022 highs, then any correction in stocks, whether through time or through price, would be just that - only a correction, but within the context of an ongoing bull market.

We called them our "Fab 5".

First, here is Technology which represents the largest weighting in the S&P500 and Nasdaq100:

If Tech is above those former highs, then how bad could things be?

That was our thought at the time and still to this day.

Here are the Industrials, which are the most highly correlated with the S&P500 of all the S&P sectors:

One could argue that Industrials are the most important sector, even more so than Technology.

But we put them in a similar category of importance.

And how about the Financials?

We don't have bull markets around here without Financials participating.

Here is the Broker Dealers Index, and if it's above those former highs, then the structural bull market is still in place:

This is a Consumer economy right?

And Consumer Discretionary is hitting new 10-year lows relative to the S&P500.

Homebuilders really stand out here from the Consumer Discretionary stocks.

So as a leader of one of the most important groups, holding above those former highs has been key:

And finally, Semiconductors.

You can't have any Tech without Semi's.

And these stocks represent a different group than the XLK, which is mostly driven by Apple and Microsoft.

If the chips are above those former highs, then the structural bull market remains in place.

These are all Monthly Candlesticks and this process of reviewing them every month adds the most value to my view of the markets than anything else we do.

We only get one data point each month.

So it really brings me back home in terms of identifying the direction of primary trends.

Last night was our LIVE Monthly Charts Strategy Session and you can watch the replay here and download all the charts.

There are certainly divergences that we're seeing in this market.

From High Beta no longer outperforming, to Small-caps down since their December highs, to Junk Bonds that stopped rising late last year...

But this one is the divergence of all the divergences:

The way I learned it was, "Don't Fight Papa Dow".

And so with the Dow Industrials hitting new highs, but the Dow Transports rolling over, are we fighting Papa Dow?

I think to a certain extent we might be.

But again, it all falls within the context of the structural bull market, as defined by those Fab 5 groups of stocks highlighted above.

One could argue that the "New Dow Theory", which would include Semiconductors as the stocks that deliver the goods and services, rather than the Transports (formerly the Railroads), are confirming one another.

Look at the new highs in the Dow Industrials and Semiconductors, while the Transports are being left behind.