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Momentum Monday - People Betting On An End To The Bull Run

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Good morning…

I hope everyone had a good weekend. We have upgraded the Momentum Monday format with Tommy Tranfo joining from Stocktwits to be the moderator and add a few questions from the Stocktwits community each week.

Right now many people are starting to bet on the end of the bull run.

I will let the strong trends run their course…I just do not know how long the tech stocks will run. I hope you enjoy the new format.

You can watch this weeks episode of Momentum Monday and last weeks episode of Trends with Friends on my YouTube channel. It is easy to subscribe and if you do so, every Sunday you will get an alert when the show get posted.


Here are Ivanhoff’s thoughts:

The S&P 500 and the Nasdaq 100 closed at a new all-time high again. The mid-cap ETF, MDY is setting up for a potential breakout out of a long multi-week base. Small-cap stocks are also starting to wake up. And yet, there seems to be a solid dose of negative sentiment. I love skepticism during bull markets because every trend needs disbelievers.

People are citing bearish momentum divergences as the major reason. The number of S&P 500 stocks above their 200 and 50dma is decreasing while the index is making new highs. This is how indexes topped in the past. The trouble is that timing a top is a lot tougher than capturing a bottom because stocks top as individuals and bottom as a group. A bearish divergence can continue a lot longer than most expect and can resolve in two ways: We can see an expansion of the rally as more stocks participate. This happened last year in May and June. Or we can see a correction and most stocks pull back.

From where I stand, both scenarios are equally plausible right now. More stocks joining the rally mean more and better opportunities in faster-moving stocks. A correction means lower prices in the strongest companies – so many investors are dreaming about buying pullbacks in the strongest semiconductor and software stocks. Any dips will offer better risk-to-reward opportunities. 

What would make me bearish is an increase in distribution days.  Stocks falling on big volume for multiple days is a sign of distribution or institutional selling. We haven’t seen that yet. Stocks making lower highs and lower lows in the time frame of your interest – be it weekly, daily, or hourly is what would make me take on some short or buy put options. It’s as simple as that. Before those occurrences, bearish divergences don’t matter. They can continue a lot longer than most expect. As legendary investor, Peter Lynch said: “Far more money has been lost while preparing for a correction than during the corrections themselves”.

Featured Charts:

Have a great week.

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