Remember in the back half of last year, when virtually everything was working EXCEPT for Tech stocks?
Well a funny thing happened early in 2023, money rotated into Tech and other Large-cap Growth.
These Tech stocks did so well, that people who are bad at math convinced themselves, and others around them, that it was only 5 or 7 stocks going up.
That was hilarious.
And while it definitely wasn't just 7 stocks, but thousands of stocks ripping in your face all year, Technology was certainly the leader along the way, particularly on a market-cap weighted basis.
But that relative strength has been rolling over the past few months as momentum has also diverged negatively.
And then in early January, they got the rotation they were looking for, and it became Tech and Growth as the leaders of this Bull Market.
Now that we're in Month #14 of this Bull Market regime, and we've seen several cycles of rotation already, I think it's time for another one.
First of all, take a look at the Nasdaq100 $QQQ currently running into former resistance from late 2021, that preceded the failed breakout and ensuing collapse:
Technical Analysis is the study of the behavior of the market and its participants.
So while identifying price trends is our ultimate goal, sentiment plays an important role in that process.
Prices don't move up or down because of "fundamentals" or "the economy". The price of assets move based on positioning.
When investors are all positioned one way, and are at a consensus, who's left to drive prices further in that direction?
Last summer we saw some of the most pessimistic sentiment towards stocks in history.
Some of that sentiment has started to shift a bit, like in the AAII and II polls. We're back somewhere towards the middle in those. You need, at least, some bulls to buy stocks to have a bull market.
But when it comes to Fund Managers, Cash is still their largest position, and they're most bearish on equities.
We interrupt this raging bull market to update you on some historic positioning in the bond market that is sure to impact your portfolio, whether you like it or not.
Even if you don't trade bonds, this is really really important.
You see, I know it's easy to sit back and chill out with the S&P500 making new 52-week highs, the Dow Jones Industrial Average and Dow Transportation Average making new 52-week highs and, of course, the Nasdaq100 making new 52-week highs after posting its best first half to a year EVER.
Market breadth continues to expand and sector rotation is frustrating the hell out of anyone trying to short this market.
The thing is, what even changed?
What happened that stocks have absolutely been ripping higher since last year?
Positioning.
It's not the economy that drives stocks. It certainly isn't fundamentals.
It's hard for me to have a conversation about the stock market without bringing up what's happening in bonds.
Think about it like this, the market cap of all US Stocks is somewhere around $40 Trillion. For the bond market it's over $120 Trillion.
Volatility in bonds tends to trickle down to other asset classes, especially stocks.
US Stocks really got going in the 4th quarter last year, once the US 10-year Note stopped falling in price.
I don't believe that was a coincidence.
But at this point, Large Speculators have on their most aggressive short position in bonds ever.
So in other words, what is historically the "dumb money", particularly at turning points, are betting more aggressively than ever that bond prices are going to fall and rates will now continue higher: