We retired our "Five Bull Market Barometers" in mid-July to make room for a new weekly post that's focused on the three most important charts for the week ahead.
This is that post, so let's jump into this week's edition.
The latest E-Trade StreetWise survey, which is put out quarterly, revealed most investors (66%) believe the market is in bubble territory, and another 25% think it’s approaching one.
Check my math, but that's over 90% of investors thinking we're in or near a bubble.
A bubble!
Everything needs to be a bubble.
You see why we can't have nice things?
I mean, what ever happened to a series of higher lows and higher highs defining an uptrend?
Too simple?
Not intellectual enough for you?
Fine. Let's get into facts.
The Dow Jones Industrial Avg and Dow Jones Transportation Avg did nothing for almost 3 years, and just broke out in the 4th quarter last year. Is this a bubble? Or just the beginning of a new uptrend?
When we take a step back, this all jives with what we're seeing in other asset classes as investors are rushing into risk assets as they position themselves more offensively.
This development really began last March as the market was bottoming from its swift Q1 selloff. Although the relative trend really accelerated in early September as Mid, Small, and Micro-Caps began to drastically outperform their Large-Cap peers.
Let's take a look at how this cap-rotation has impacted some of the secular leaders at a sector and industry level.
Nifty 50 has gone ahead and given us a signal of caution after a relentless rally. While we have seen days of a pause in short-term momentum in the past, this time around there's a slight difference.
Let's take a look at the daily chart to see what we've got here.
Software names have been leading the charge in this bull market. And if stocks are setting up for another extension of this bull run, I expect a lot of the leading stocks will come from the software space.
The market has been gaining from strength to strength and if anything, we see greater participation across the globe as this rally matures into what looks like a long-term bull market.
One phrase we hear pretty often during such bull markets is the "Risk-on environment". So what is a Risk-on environment and what are the indicators that allude to such a set-up?
It's not a new chart - in fact it makes the rounds on a fairly regular basis.
The iteration I saw this week showed the relationship between global money supply, stocks and high yield bonds over the past five years. The trend for all three was the same - up and to the right, with early 2021 bring a fresh round of new highs.
For whatever reason, my first thought on seeing this version was that Wu-Tang Clan had it right all along.
Chatting with the team this morning, something that stuck out and we all agreed on is that the Megacaps are starting to show signs of re-asserting their dominance. And that it won't be a one-day event. Just look at NFLX, MSFT, AAPL, and the like and you'll likely see what we're seeing.
And the stock that stands out the most to us right now is Google $GOOG.
