Market breadth flashes warning signs as 52-week lows exceed highs despite S&P 500 gains. Focus on 'new-era' technology stocks to avoid overvalued mega-caps and navigate potential volatility leading into mid-term elections.
'Preservation, income, and growth' are the traditional portfolio pillars that investors are encouraged to focus upon; and we don't disagree one bit. Just once in awhile I point out that the majority of our holdings discussed here tend to diverge from the conventional focus on the market; as pricey big-caps are not area of concentration I tend to have when S&P and big-caps generally .. are pricey. Yes, sometimes they go up more; but also we prefer to look for the value in new technology that's still a bit under mainstream radar. Not all work out of course; but that's why we have a handful; expecting a couple do well.
This has been and remains such a time. I mention this for the occasional new member that might not grasp why we focus on new-era tickers; or emphasize that how much a proportion of a portfolio they represent (in-aggregate) for an investor is not something we reflect much upon; but typically a small part.. for those who ascribe to the conventional structured investing market traditions.
I don't need to take time to tell an investor to go into ETFs or mutual funds or the conventional proportional distributions. That's an individual decision and is not anything requiring particular knowledge beyond 'every' broker or manager in the Nation presumably. And while it goes against the 'mainstream grain' for someone at my age; I too have a percentage in these speculative tickers.. not sure if it's because I'm watching the market for you guys anyway; or just in my nature to speculate (gamble?), but why not.. if these stocks double or more, I might take a more deluxe suite on a cruise... if they don't I'll still take a cruise.
The point is I'm not risking my lifestyle (nor should most of you), bet the farm or any of that (not many farms; maybe yachts lol); and not suggesting others do either. But I do enjoying it more, especially when times are reasonably hot, not lukewarm, like things have been lately. Although most of our small-caps in fact are holding better proportionately than the so-called 'bluer' chips around.
Market X-ray: so we emerged in mixed fashion from September; and the market to a degree indeed did swing according to the outline; albeit not exciting. The old adage is either September or October can be heavy; but not both. So does that leave October vulnerable ahead of Mid-terms?
Perhaps.. and perhaps not. Washington knows that too; expects Democrat victories in many areas; but might pull a rabbit or two out of (Bessent's?) hat, so as to hold things together ... but we don't know. We do know that 52-week lows have often exceeded 52-week highs lately; and that historically is a warning sign.. but more for the priciest ones; not the smaller-caps that have already been down or sanguine.
So if you want to know 'when' I might show more interest in the big hyper-scalers and so on; the answer is perhaps not at all; or only if the market tanks. If it does I'd be a greater buyer looking forward to Q1 of 2027; and not any kind of seller (in-general); and if S&P doesn't tank likely just focused on the new-era tickers; some of which I suspect do well in 2027 regardless.
While S&P ekedout a monthly gain, overall market breadth was poor, with roughly 75% of individual stocks inside the index actually losing ground during September. I pointed out the tally of new highs was often exceeded by new 52-week lows, even on up days; historically not a favorable sign (to say the least). But generally the purges were in already expensive stocks; and this is clearly a market 'waiting for Godot' or so it seems starting October (yields, Oil, war, consumer frustration, and of course Mid Terms remain on the horizon).
Bottom-line: as I've noticed several times this past month; when S&P index rises but more stocks hit new 52-week lows than new highs, it reveals a fragile market beyond merely poor "breadth".
This divergence was based a tiny handful of mega-cap stocks artificially lifting the index, while the vast majority of companies actually persisted struggling or in downtrends. Historically, lack of participation is a classic warning that S&P upward momentum is unsustainable and vulnerable to a sharp reversal. But internals already worked-lower for months now; and we were basically quite restrained (you could say 'bearish') about the mega-caps since the last 'solid' rebound into early July, that we had anticipated (as we often do seasonally).
Of course the question now is whether we had 'enough downside' or an finale event looms; which wouldn't be the mid-terms that most fret about (logically); but the illogical such as a geopolitical event or horrid attack we're unprepared for. At the same time most of our new-era tickers are focused on the 'threats' of 'our time'; and thus actually advanced or held their own, whether stretches of boredom or not prevailed periodically (and we expected that since July; as often calling for 'Dog Days of Summer'; swoons and so on).
Now we may get more drama, but if the 'worst-case events' don't occur, then dips may be buys in certain stocks; and we'll evaluate that as we go forward. Meanwhile for the new-era stocks that are doing pretty well (or may soon) we follow fundamental news and their guidance; more so than the S&P behavior; with satisfaction if the Index and general mood simply doesn't get in the way.
Disclosure:
This is an excerpt from Gene's Daily Briefing (distributed nightly), which typically includes videos as well as more charts and analysis.
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