Psychology of a TOP

There is a lot to review at this time. Since May 10, 2021 the markets have been in what I call a “mess“. During this time we have seen two big events.

  1. The ascendancy of MEME stocks.
  2. And secondly the meltdown of Bitcoin and Ether.

As we promised a few days ago, we have been looking at factors that have led to our current economic and market state, short term factors since February 19, 2020 and long term, ten years ago, since October 2011 when the Bernanke economic pandemic was hatched with various QE.

Here is a table with a lot of numbers that include indexes that we have calculated and used in the analysis of where we are at this point. It is a lot of numbers and maybe a bit difficult to read without a magnifying glass. You will note that all the indices are set to 1.00 on February 24, 2021, the date when the market came to the beginning of the current topping action.

Significant dates where measurements are taken (we keyed off the S&P in determining these dates) are:

  1. February 19 2020, the date when the market topped after the January 2018 start of the fracture period, the period when Trump’s Corporate Tax and Tariff disturbances prevailed. Obviously COVID was a trigger.
  2. April 9, 2020, the date when the FED and Treasury orchestrated the massive rescue plan for corporations, buying junk bonds and setting cheap interest rates. It was kind of an ironic approach when it was people, not corporations that were affected by COVID. No major corporations died.
  3. August 7, 2020, the date when a start in the increase of the working interest rate, the 10 Year rate, started higher. Gold and Bonds were the biggest area affected. Stocks and commodities ignored the changes as the rates were historically cheap.
  4. November 6, 2020, the date from which the Biden victory expectations took hold.
  5. February 24, 2021, the date when the momentum for core stock indexes started to slow. At that time the Wall Street guru’s started talking about looking around at other narratives, epicenter, infrastructure, and reopening stocks. (see our MAST, TLEA, and INFR indices).
  6. May 10, 2021, the date where things started to stall and Bitcoin and Meme stocks became the action points.
  7. June 10, 2021, tomorrow, the date where either the unravelling starts or the date where the guru’s kick off the much touted, since May 10, parabolic up-move in the S&P and Nasdaq. You won’t want to miss this.
  1. In the first section of the table, you see the four major stock indexes. The SPX, NDX, DJI, and RUT
  2. In the second section we have listed the sub indices that we track to see how various themes are playing out. These are our inhouse derived names and the stocks that they include are listed here.
  4. MAST: (Main Street stocks) WMT,COST,HD,TGT,LOW,BBY,TSCO,AXP
  5. INFR: (infrastructure stocks) CLF,CAT,XLE,FCX
  6. FAANG: (Fang stocks) FB,AMZN,NFLX,GOOG,AAPL
  7. TLEA: (Travel and Leasure) AAL,DAL,UAL,LUV,RCL,NCLH,CCL
  8. AGG: (Agriculture Stocks) BAYRY,DE,ADM
  9. BTCO: (Crypto) BTCUSD, Ethereum_XBT
  11. ARK: (Futuristic stocks) ARKK,ARKF,ARKG,ARKW,ARKQ
  12. And finally in the third section of the table, sectors to watch for macro effects: 10 year rates, Gold, Commodities, Dollar.

So what jumps out at me from this table and chart ?

A. FAANG, WBFG and ARK reacted strongly to initial FED and Treasury actions in 4/9/20 to 8/7/20 period.

B. The election results initially seemed to excite MEME, INFR, TLEA, and BTCO stocks during the 11/6/20 to 2/24/21 period.

C. The Market topping period, 2/24/21 to 5/10/21 period, saw BTC outperform and WBFG and ARK underperform.

D. The Mess period saw MEME outperform and BTCO underpeform.

So what do you do with all this info?

Maybe just apply what you think is going to happen on interest rates, inflation, and tax rates, obviously P/E ratios and other normal indicators are just background issues.

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