The Greed and Fear Index continued in full retreat yesterday even as the stock market continued ahead.

The NASDAQ-100 (NDX) led the pack as it achieved a new all-time high.

Groundhog Day

Technology (XLK) is surging, paced by hardware, after an upgrade of Apple (AAPL) before the opening bell.

 

Turning Up the Heat

Industrials (XLI) wedged into the mix of advancers as Boeing (BA) regained its equilibrium. We are flooded with questions about when to buy the stock. I would begin to build a long-term position now.

Bad News Now, Good News Later?

The Philly Fed Manufacturing survey came in below the consensus, which is good news these days. But the six-month outlook hints at a strong rebound in ‘prices paid’ and ‘prices received.’

Value stocks (no matter how they are measured) and small caps were at the top of most buy lists for 2024, yet they are drifting even further behind the broad market and mega-cap tech names. Below is the Russell 2000 versus the S&P 500.

No contest.

Portfolio Approach

We opened a new Technology position in the Hotline model portfolio this morning.

Today’s Session

There are spurts in the market where a lot of money is made but risk rises to levels that mitigate potential reward.

It is my job to try and protect against that, but it’s hard because people see and join crowds out of human instinct.

There have been lots of technical breakouts, but not the S&P 500. I would like to see that happen, and if it does, it should spark more buying.

Two of the three pillars are working.

• Technical (for high Beta names)
• Behavioral (for high Beta names) 

But there are red flags.

With the board economy slowing, there could be general pressure on top line growth and earnings.  I'm having a hard time finding stocks where earnings estimates are moving higher and valuation metrics are moving lower, otherwise known as layups.

Active money managers are selling into this strength. They have a propensity to chase, so this is an intriguing action or inaction on their part. 

The rally isn’t broadening out. There has been a sharp decline in names trading above their 200-day moving average.

On one hand, this means there are great value propositions being ignore, because the story isn’t sexy.

On the other hand, what we saw last year is when the hot stocks turn lower, there wasn’t automatic rotation.

S&P 500 Components Above 200-day Moving Average

Bottom Line

We want to ride these waves, but unless underlying fundamentals are improving, some of the more alluring stocks are trading ideas, whereas there are others that are investing ideas but are not scrolling across your screen, which have better risk-reward dynamics. 

Let’s Go!

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