Quick reminder that Brown Technical Insights is off next week, and there will not be a Monday Morning Playbook. The regular schedule will resume on August 10.
Good morning,
We got a timely Mailtime question last Tuesday, which was essentially, “What would make you bearish?”
Our astute reader noted semiconductors and weak seasonality, and I added on concerns with leadership and the risk of a dollar breakout. Later in the report, I also noted a breakdown in the chart of large growth stocks is something that could make me outright bearish on US equities.
Well, throw in surging bond yields, and we pretty much got all of that over the following three days. A pessimist might even throw in that I’m going on vacation next week, so what better time for $h*t to finally hit the fan?
The culprit, of course, was the Mag 7 as both Alphabet and Tesla massively disappointed and posted huge drops on Thursday.
If strong participation and breadth are the cornerstone of the bull case, the charts of communication services and consumer discretionary are probably the best starting point for an outright bearish case. After all, if we’re going to be bearish equities, we probably need to see clear signs of said equities breaking down.
That said, two major factors should keep investors grounded and not yet running for the exits broadly.
One, the money leaving growth stocks is still finding a home in other areas. Real estate and energy broke out last week, utilities may be next, and healthcare and financials remain on firm footing.
Two, while a correction seems perfectly reasonable given the confluence of factors, it’s hard for me to get outright bearish knowing the three best quarters of the Presidential Cycle are waiting on the other side of September.
That starts with Q4, which has been lower in midterm years only three out of 19 times since 1950.
This week’s report will review:
SPX technicals
The bear case for equities
Sector and ETF movers
Commodity strength
Rising rates
The dollar and key crosses
and more!
