Big rebound in software stocks last week..
The below grid displays the 1yr RS chart (vs. $SPY) of the largest $IGV stocks. Comprising >50% of the index.
$PANW $ORCL $CRWD are notably breaking out.
We’ve come a long way from people freaking out during Brexit 2016 when robo-advisor Betterment paused trading proactively.
Now we’re rolling out AI agents to manage retail brokerage portfolios en-masse.
What a difference 10 years make
The market is riding two horses simultaneously! A stellar earnings cycle AND elevated multiples. This is a bull market as pure as they come. But with stocks priced to near perfection per the Fed Model, higher yields could force a stock market re-rating. This is tail risk #1 IMO.
We know that inflation is less driven by commodity prices than in the past, but the chart below shows that goods inflation still matters. When the 5-year CAGR of the Bloomberg Commodity Spot Index is consistently above the 5-year inflation rate, it tends to “pull” the CPI higher.
All of this suggests that while it’s important to celebrate the epic earnings cycle we are in, we shouldn’t forget the valuation risks if bonds enter the 5% danger zone and the Fed Model takes its revenge. Price is at the intersection of earnings and valuation.
Homebuilders RS Chart overlayed with $SPY 12-month rate of change.
What does a struggling homebuilders industry mean for the broader US market?
$XHB $SPY
$TTMI TTM Technologies, Inc.
A pick & shovel play for the two hottest spending cycles of the last two decades. Defense and data centers. The stock traded at 9x fwd PE just 12mo ago - now at 48x. It doesn't get much better than this chart..
$AAPL Multi-Timeframe (1yr D, 5yr W, 10yr M)
Abs price: polarity working beautifully across all timeframes. Prior resistance becomes new support - Makes sense, given it's the most widely-followed stock on the planet.
RS Chart: Still below the '23 highs vs. $SPY. You'd have been better off owning Mr. Market the last 3yrs - less vol, less drawdown, higher return.
US Aerospace & Defense $ITA
Strap in! Coil pattern with price trading above an upward sloping 200-day average. Historically, when this type of compression occurs, price resolves in the direction of the primary trend.