Potential inflection point nearing

Apologies that I haven’t written a blog post in almost a month (though I’ve been active on FinTwit daily). There’s only so many long-form posts I feel I can write pushing one macro thesis (bullish stocks & crypto / bearish gold & bonds) before things start sounding repetitive.

One of the last posts I wrote was in early March after the Nasdaq-100 fell 10% from its mid-Feb high. The market bottomed a tad higher than the identified support level (12,100) and since then, QQQ has come roaring back to its highs.

While I continue to like stocks & crypto short-term, I think we’re nearing a point where the risk-on trade takes a healthy pause for at least a few months. Let me show you what I’m seeing.

  1. Breadth. Nasdaq-100 is making a bearish breadth divergence.

  1. Emerging Markets. Another bearish divergence is occurring between EEM and the S&P 500.

  1. Seasonality. We’re approaching May, where historically the market begins being weak for the following 6 months.

  1. Speculation. The chart below shows just how crazy things got in Jan-Feb. Stocks in totally different sectors were pumped & dumped.

  1. Defensives Leading. From the Mar 4 - Apr 20, $SPY is up almost 10%. The two strongest sectors during that time? Real estate and Utilities! Each up over 16%.

To be clear, I’m not calling for a big crash. I simply think we're due for at least a few months of consolidation after an incredible run. Keep in mind the big picture shown below. This is still an early bull market.

I’ve written before that Bitcoin is a risk-on asset (correlated with stocks on a longer time frame) while Gold is a risk-off asset (does well when stocks are chopping sideways).

Since last summer, it has paid handsomely to be long Bitcoin and short Gold. But in the coming weeks/months, I think the opposite trade could begin doing very well.

If I had to hold stocks in this risk-off environment, I’d favor large-cap growth. Remember, Growth:Value, Bonds, and Gold have been trading together. Also, many of the FAANGM stocks have built beautiful 8-month bases.

That’s all for now. I’ll do another post as I see things unfold.

Important DisclaimerThis blog is for educational purposes only. I am not a financial advisor and nothing I post is investment advice. The securities I discuss are considered highly risky so do your own due diligence.