Market Review:
I read a tweet the other day that said we’ve been in a “raging bull market” for over a year.
Wow.
That sounds exciting.
If only it were true.
The reality, unfortunately, is much more complicated than that. One of the most complicated charts right now is IWC - the fund that tracks the smallest companies in America:
Containing 1,547 stocks, the chart of IWC shows that a huge swath of the market hasn’t participated.
Using just a simple 100 & 150 pair of moving averages, the index has been in a choppy, messy downtrend for the past 18 months.
To believe that the average retail trader has successfully navigated this chop and is completely fine today is delusion.
After 2 years of tough markets, many retail traders are simply giving up and this can be seen by observing the number of active accounts at Robinhood:
In a “raging bull market”, you’d expect retail traders to be opening new accounts - not closing them.
Another sign that the market isn’t firing on all cylinders pertains to growth stocks.
Trading under the symbol FFTY, the Innovator IBD 50 Fund tracks the top 50 growth stocks in America.
One curious fact that may surprise you is that the strategy hasn’t made any money going back as far as 8 years:
After facing the disastrous consequences of the most idiotic policy decision in a generation (i.e. unnecessary lockdowns + printing trillions of dollars), the IBD 50 Index got blasted in 2022 and still hasn’t regained its footing to this day.
So after investing in America’s most innovative companies for the past 8 years, you’ve made nothing. Meanwhile, during the past 8 years, the cumulative inflation has eroded your purchasing power by god only knows how much.
But, yeah, other than that everything is fine. It’s a raging bull market.
Individual Stocks:
Despite my opinion that the bull market is unhealthy, there are definite pockets of strength that I will focus on now.
Firstly, Caterpillar gapped up to a new all-time-high this week on the highest volume in a year:
This Momentum Gap creates a support zone at the $265 level and places CAT in a strong defensive position.