Market Overview
We got a record S&P500 index value and another positive week from all the other major indexes. It is notable that NASDAQ did not hit new high, and is somewhat lagging behind in the reaction, but it’s another green week for it never the less.
The VIX remained attached to the trend line it has been following for over a year, but it does remain on the upside direction and has not collapsed just yet:
Industry Cycles and Breadth
As you know, I like to track the market moves in cycles and I am currently tracking a cycle that started on August 7th and has now been 46 calendar days in effect. Usually the cycles I track are around 60 to 90 days, so in a way I expect the next phase in the cycle to be more to the downside.
This is why it’s hard for me to start loading up in my portfolio on the long side even though I am seeing S&P500 reach new high. If the cycles follow their usual flow, the markets will discover some sort of reason to react negatively in the next month.
Let’s first take a look at the updated cycle starts:
The cycle is going strong, no big “dumps” since August 7th. The breadth looks even better:
If we look at another chart which shows the number of industries that are at their breadth high, the picture looks somewhat split:
We had a good amount of industries reach their new highs in the cycle end of August, but then all the gains in breadth we have seen didn’t carry that many industries forward. There is a smaller number of industries that reached their breadth high last week than the three weeks ago. This chart would suggest that the cycle is indeed mature and might be preparing for the end phase.
Industry Highlights
REITs are calming down and pulling back. Perhaps this will be the first healthy pullback in those industries as they have experienced substantial gains from the summer up until today. The interest rate cuts were supposed to be a major boon for those industries, so perhaps this is a “sell the news” behavior as all the gains and then some had been put in over the last three months and now profit taking and price adjustments are taking place.
The metals are back on here after a brief break. First, copper shot to the top spot:
Gold shouldn’t be a surprise to anyone and has been rising steadily for a long time:
Aluminum was at the top but had a bit of a pullback on Friday:
Travel services rose into high breadth area in both SMA20 and 200 breadth:
These are just a few out of many industries that are doing great yet again.
Struggling industries
Beverages - Brewers industry at one point almost looked like it will breakout but instead has collapsed back down:
Another industry that I had highlighted over the summer and participated myself in has pulled back in a big way, Tobacco:
Oil related industries have remained low despite the bounce back in oil prices. And another industry that’s worth to note here is Semiconductors. This area was one of the leaders in the current bull market, but the rate cut reaction in that industry has remained somewhat subdued.
Closing thoughts
My portfolio remained almost identical to the previous week. It was all long coming into the week, I even somewhat worried about not having any shorts in my portfolio in the last issue. I do feel like the cycle is coming to an end and there could be some good shorting opportunities coming up. I added a new short position at the end of the week and will be on the lookout what else I could add to prepare to the cycle end.
At the same time, I am going strong with my long holdings and keeping positions around with a few tightened stops here and there. I haven’t closed a long position for several weeks now, so there should be some profit taking coming up.
I remain long term very bullish but still feel like there is a volatility spike incoming soon, or at least I am mentally preparing for it and planning the actions I can take there. At the same time, if I am wrong, the long positions should continue to increase their gains and I can ride them as long as this current run goes. Let’s see what happens.