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V-shaped rally followed by euphoria then a correction This has been a recurring pattern since the 1990s And it’s happening again today A thread 🧵
2/ There’s some good news and some bad news The good news is that US stocks just hit new all-time highs And with that surge, we locked in a few solid wins on our website
3/ The bad news is that July could bring a rug pull About a month ago, we shared this chart with our clients at Bravos Research: Fund managers were severely under-allocated to US equities in May
4/ While we don’t have the latest data yet, it’s safe to assume managers have now amped up their exposure Earlier, both retail and institutional investors were still nervous about downside risks from Trump’s proposed tariffs
5/ But stocks have surged since May That rally’s been powered by a wave of FOMO buying Plus a short squeeze As investors hedging for downside had to cover, forcing them to buy the index
6/ That’s what makes these V-shaped recoveries so violent Just like in 2020 and 2019, the index moves to new highs quickly cause of the forced buying While the index itself has powered through, the average stock within the S&P 500 hasn't performed well
7/ This green line tracks how many S&P 500 stocks are trending higher Right now, it is just around 50% So despite the index making new highs, a lot of S&P 500 names are still trending lower
8/ That’s not necessarily bearish, it can always catch up But it does show most stocks haven’t participated in the rally And underlying concerns on the average S&P 500 stock remains
9/ The big run up has been dominated by just 4 names: Microsoft, Nvidia, Meta, and Netflix Since April, the S&P 500 is up 20% Microsoft and Meta have risen by +40% Netflix by +50% And Nvidia by a staggering +60%
10/ Together, these 4 names make up nearly 20% of the index So their outperformance has done the heavy lifting That’s created a wide gap between the cap-weighted S&P 500 and the equal-weighted version, RSP The big tech names have skewed the overall picture
11/ Now, this divergence isn’t the end of the world Back in 2020 during the post-Covid rebound, the S&P 500 hit new highs in August But the RSP was still lagging well below its previous all-time high
12/ But right after the S&P 500 made a new high, it corrected by roughly 10% to digest the gains A classic example of a post-rally breather Find such key insights in 3 weekly Premium Videos outlining our trading strategy at: <a target="_blank" href="https://bit.ly/BravosResearch" color="blue">bit.ly/BravosResearch</a>
13/ After a rapid V-shaped recovery, investors rush back into the market They pour into a handful of large cap companies And right as the index makes a new all-time high, everyone is convinced the market is heading higher That’s the moment it actually corrects, before resuming higher
14/ We saw the same setup in 2019 After the V-shaped rally, the S&P hit a new all-time high, then corrected around 7%
15/ Go even further back to 1998, and the pattern holds A fast W-shaped recovery pushed the index back to highs And right after that breakout, there was a 5% correction
16/ So, when you combine weak breadth, overextended leaders, and new highs on the index, it suggests that July could bring a healthy market pullback
17/ We’ve explained in recent videos why the bull market can still carry on into year-end, supported by strong fundamentals But in the short-term, a pullback here would be natural and healthy
18/ We may be early, but we’re trimming our US equity exposure Especially in tech names like Spotify, KAC, and IBM that have been melting up
19/ We’re keeping positions we believe can weather a pullback One of those is Bitcoin We think it could benefit if large-cap stocks take a breather
20/ If you want to track what we’re buying, selling, and our complete strategy week to week, subscribe to our service You can view our track record for FREE at: <a target="_blank" href="https://bit.ly/BravosResearch" color="blue">bit.ly/BravosResearch</a>