What is going to happen next?
The nature of war changed, and not for the better. In the old day the general would lead their troops into battle. Now, they sit in air conditioned safety while the grunts get killed. Do you think Genghis Khan would sit back in Mongolia and wait for news on the battle? No! He was there at or near the head of the troops rallying and leading them into battle. The same goes for: But now? It must be like a video game to the generals watching TV screens and seeing things and people get blown up. But markets are still old school. The generals lead the troops into battle and the troops follow right behind. Until recently! | |
In this case the generals are the mega cap stocks that dominate the various stock indices. For example, the top 20 stocks in the NASDAQ account for 50% of the action yet they are a small percent of the actual number of the stocks. Let's call them the generals because if they go up the index goes up and vice versa. They are that dominate. The soldiers are all the rest of the stock in the index. Now, imagine Genghis Khan charging the enemy on horse back only to look behind him and not see any troops behind him! Oooops! He's going to get killed unless he turns around and quickly retreats. Well that is exactly what is happening right now in the market. Here's what I mean. | |
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The chart above shows the price of the S&P 500, in red, compared to the Advance Decline line of stocks only. The latter indicator is a good proxy for the troops and the S&P 500 is a good proxy for the generals. As you can see, the generals were making all time highs until just recently. But the troops have been retreating since they made a high in December. Put another way, the generals have been charging forward while the troops have been retreating. No battle is won in that circumstance. They both have to charge in the same direction. So what this means is that the generals, the S&P 500, has to decline in the near future to catch up to the weakening AD Line. So look for even weaker prices in the major indices. Want to know what I'll be shorting to make money on the downside? Click here to learn more about my weekly video newsletter, Wall Street Winners, and see my actual trades. Good trading, Courtney Smith | |
Words To Live By Again, said Rhea, "the final stage is sometimes recognizable because people then buy stocks simply because they go up, and because other people are buying them. They consider it old-fashioned to regard earnings or prospects. Speculation is rampant. In-and-out traders exchange their patched pants for gaudy attire, and become boardroom oracles. We soothsayers get to explaining why there never will be another bear market. Statisticians look backwards and figure out how it happened." Richard Russel quoting Robert Rhea In a way, we are passing through the phase that Rhea is describing. Rampant speculation is everywhere in things like: - Meme stocks
- The housing market
- Crypto
- NFTs
- and the stock market in general
It is still going on but we must always change our strategy when we get into this phase. We keep a lot of longs to take advantage of the suckers, er, investors coming into the market but we must also be starting our bear operations in the market. | |
 | COURTNEY SMITH
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