I am seeing a lot of distribution in this tape. It has been building for the past two weeks.
You never see the termites when they are eating at the foundation of your house, but this is what I am beginning to see - a potential, important change in character to this tape.
For now, this warrants a much slower pace of activity for us.
The weakness in the Materials Select Sector ETF (XLB) and S&P Homebuilders ETF (XHB) stands out, particularly. The materials group is now trading well below their 200-day.
In the housing space, names like The St. Joe Company (JOE) and Green Brick Partners Inc. (GRBK) are technical shorts, if that is your thing.
Meanwhile, we have seen select small caps go parabolic, which is typically the end of the cycle. What else is left to go up if everything has actually rallied?
To this end, the Russell 2000 Index is now hovering above its 50-day SMA, 5% off of its recent highs. While the $RUT is certainly oversold and poised to hold the 50-day in the near-term, WHAT IF we crack the 50-day decisively in the coming days and weeks.
Most likely, we will not. But, again, WHAT IF?
Within the semis, while AVGO and MRVL are now the new leaders, NVIDIA Corp. (NVDA) has begun living below its 50-day SMA. NVDA needs time to rebuild a base and reset. Perhaps it even needs 2-3 quarters of, dare I say, going down?
We are now seeing more New Lows than New Highs consistently on the Nasdaq each day. Here is a snapshot of breadth this morning:
While a Santa Rally certainly is still viable, I think a lot of people are happy to bank their gains and move to the sidelines until 2025. I know I am.
I have learned it is often best to fade myself when I have been on a super hot streak. So this is what I am doing. Maybe it will cost me some upside in the near-term, but I can live with that. And if I am right, then I make good alpha by avoiding any near-term slop.
Besides, trading every day is a fool's game.
To this end, we want to remind all of our New Clients - and there are a lot of you - that during periods of market chop, we are very inactive. This is when we do some of our most significant work, diving deep into names we believe could be the new market leaders.
This is the elbow grease to the process you do not see.
January is chock full of dozens/hundreds of pre-announcements from JP Morgan, Needham and the big retail conferences. This is what we are preparing for – our prime time, if you will – when it is our job to identify and serve up these Top Tier Inflections to our membership base.
Thank you for an amazing year.
We promise to do our best to serve you to the best of our abilities in 2025 and beyond.
A Happy and Healthy Holiday Season to you and your respective families!
Best,
John and The Top Tier Team
