Mid-week market update: One of the bullish tripwires I outlined on the weekend has triggered (see Buy the Cannons: Exploring the Bull Case). The small cap Russell 2000 ETF staged an upside breakout through the neckline of an inverse head and shoulders pattern, with a measured upside objective of ~250, which represents a potential upside of roughly 18%.
The breakout was accompanied by a frothy revival of the market’s animal spirits.
Return of the Animal Spirits
George Pearkes at Bespoke observed that risk appetite was returning to the market.
Indeed, the advance was led by the high beta and high octane stocks. Both the NASDAQ 100 and the ARK Innovation ETF (ARKK) made all-time highs.
My own risk appetite indicators are confirming the advance.
Key Risks
My inner trader would normally turn bullish, but he remains cautious. While he is short-term bullish, the market is subject to a high degree of event risk that makes the conviction of the bullish low.
In the coming weeks, the market is faced with differing sources of volatility with high degrees of binary risk. First, there is event risk from the Israel-Iran conflict. Investors will also see the June Payroll Report next week, followed by the end of the 90-day extension of the “Liberation Day” tariff deadline on July 9. As well, the market will have to contend with the uncertainty of the budget making its way through the Senate.
In conclusion, the stock market is undergoing a frothy advance. The animal spirits are back. While they can take prices higher, event risk is higher than usual. Recent bullish and bearish setups in the current climate of uncertainty have seen reversals. If you want to be bullish, keep your commitments light.
There was a NASDAQ Hindenburg Event yesterday. This shows a split market index with a large number of simultaneous new highs and new lows on a given day when an index is near a high . This shows risk under the surface.
When $$HYIOAS is not going ballistic, and JNK is going up is usually a good sign, but rapidly rising markets can turn on a dime.
Tops are usually a process….usually. We might be in one of those markets where it is a “steeple” top.
I plan to keep an eye on the bond spreads and JNK. Mania is out there. I don’t know if we will get widespread euphoria, but it is tough holding on.
SPY could based on charts get to 750, but it might age me. I doubt ARKK will make new highs compared to 2021, that was an insane run up. Maybe insanity is like lightning, doesn’t strike the same place twice…which is not true, but so the saying goes.
ARKK is 50 % off it’s record price, 30 % off it’s record fund under management, and price rallye only due to two extremely crazy overvalued stock TSLA and COIN, you’ll have to change your references
Yes, ARKK went nuts in 2021. My point was that even if the S&P goes to 7500, I doubt ARKK will make new all time highs. Could be wrong of course.
Never put any money in ARKK, too unicorn. Maybe the ARKK is floating down the St Lawrence heading to Niagara Falls.
But if ARKK makes new all time highs, I will take it as a contrarian signal that the party is almost over.