S2N Spotlight
I am exceptionally bearish on the US markets, as I feel they have simply done too much and are priced beyond perfection. I am actually most bearish about the darling of the markets, NVIDIA. I love trading against extreme movements, with the CEO enjoying cult status, helping fuel extreme price action.
I am suggesting expressing this via shorting the Nasdaq Composite Index, either via selling the index future or buying put options. I would prefer to buy put options as the volatility of the index has collapsed, making options extremely cheap.
When the cumulative 52-week high-low spread is dropping, it indicates that more stocks are making new 52-week lows compared to those making new 52-week highs. This suggests bearish market sentiment with negative momentum. This indicator on the Nasdaq Composite topped in 2022 and continues to weaken, adding to my feelings of bearishness.
This might sound extreme, but it has been 643 days since there was a -5% down day on the Nasdaq. They happen on average every 410 days, so this is well overdue. You can also see that buying the Nasdaq after such a large drop is usually quite profitable 1, 3, and 6 months later.
S2N Observations
Continuing my theme of pouring cold water on the US market, I did some comparative analysis against global indexes and also within sectors. Speaking broadly, the only world index that has performed relatively strongly over the last 5 years is the Indian stock market. The Hang Seng has been negative over the last 5 years.
I haven’t included all the sectors comprising the S&P 500, but I have chosen a few major ones to illustrate how extreme the performance of the technology sector has been relative to the other sectors over the last 5 years.
The 10-year bond yield continues to drop. I am fighting myself on where bond yields are going. If you look at the chart below in the gallery, you would think that yields would drop further. I have been a believer in higher yields as inflation continues to be an issue that is not yet under control. I do, however, feel confident recommending a yield steepener trade. Buying the short end and shorting the long end, I think, is a pretty safe trade.
Finally, the Bank of Japan chickened out of doing anything meaningful. It mentioned it would taper its bond purchases, which means it is still conducting quantitative easing. It also delayed raising rates until maybe later this year. The yen therefore continued its weakness, and I believe it will continue to weaken past 160 for those FX traders out there.