So the question becomes: Is this fresh breakout the beginning of the next leg higher for equities?
Or is this market behavior evidence of exhaustion and it's time to get out?
Let me remind you of the "Fab 5" charts from the beginning of 2024 that helped determine whether we were starting a new leg higher this year or if it was time to bail.
The breakouts coming into this year, specifically in Broker Dealers, Technology, Industrials, Homebuilders and Semiconductors were the most important 5 charts for the next leg of this bull market. That proved to be a great list and reiterated all year that this was still a bull market and we should act accordingly.
Did you listen?
Well, this is now the next generation, and we want to approach this list with the exact same mentality.
The idea behind those Fab 5 charts in January was that if they were above the prior cycle's peak, it was really hard to be bearish this market.
And with these 4 charts we're looking at today, it's literally the exact same thing. If these 4 charts are above their prior cycle's peak, it is really hard to be bearish, and we should act accordingly.
The first one is Amazon. This is the largest component of the Consumer Discretionary Index, representing a 22% weighting.
Look at that historic base in the world's most important retailer. If $AMZN is above those prior cycle's highs, we want to approach this market from a very bullish perspective.
Notice how the Dow Jones Transportation Average looks exactly the same: Breaking out to new all-time highs and completing this multi-year base.
This Index and its forward looking behavior has been a valuable tool for market participants dating back to the late 1800s. So me including it in our 4 most important charts is consistent with virtually all of U.S. stock market history.
If the Dow Transports are above their prior cycle's highs, it's hard to be bearish this market. Odds are more likely that the next leg higher just got started.
The following chart also looks exactly like the first 2, completing a multi-year base and breaking out to new all-time highs.
This is the S&P Small-cap 600 here below, which my friend Ari Wald argues is part of the NEW Dow Theory. So instead of using the Dow Industrials and Dow Transports as confirmation of uptrends, Ari likes to use the Small-cap Index as confirmation.
I don't necessarily know that I totally agree and would go that far. But he does make an interesting point, and something I think about quite a bit.
But regardless of whether you're in Ari's camp or mine, I still believe that based on the current setup in the market, the Small-cap 600 is most definitely in the 4 most important charts for this next leg higher.
So in other words, it doesn't have to be an "or". For me, it's an "And". I'm including the Dow Transports AND the S&P600 Small-caps. And not for any other reason other than the fact that they are behaving in a very similar manner (which is likely not a coincidence).
Look at that huge base. And look at the multi-year base completing last week. It looks an awful lot like both Amazon and the Dow Transports doesn't it?
And so does Bitcoin.
Look at these new all-time highs in BTC.
Same story: Big Base. Bellwether of its space. Risk-on asset. New All-time highs:
The next leg of this bull market is just getting going.
These 4 charts above are representative of that thesis.
It played out perfectly this year, and the bet is that this party continues through the next few quarters.
So if these 4 charts are above their prior cycle's highs, we want to act accordingly, buying stocks and other risk assets - Crypto Included!
And not only is Crypto part of the bullish thesis. I think it should be front and center, if you're like me and are looking to make the most amount of money possible this cycle.
Because this isn't just about "making money". We want to make sure we make enough money, considering how early and right we've been.
There's nothing worse than getting a trade or idea right and not profiting enough from it.
Funny, somebody in the chat asked if it was too late for them to buy into crypto.
Can you believe that? Too late?
For the uninitiated, the answer, unequivocally, is no. It is not too late.
We know this because we have the data. We have the breadth data to know what's happening in the entire crypto universe. We have the data from the blockchain to see what the smartest wallets are doing. And we have the data that is our recent winners...the best data of all!
