3 Big Questions for a Roaring Market

I’m on the road early this week.

We packed the van for an extended weekend to visit family before summer slips away for good. In just a few short weeks, the kids will be back in school, while the financial pundits will start shouting about end-of-year S&P targets.

We should enjoy the quiet calm while we still can.

Due to my travel schedule (and a painfully slow internet connection), I’m not able to grace your inbox with a fresh chart or any late breaking market action this week. Instead, I’m going to discuss three of my bigger ideas in context with the recent market action and the major averages pushing to new highs. It’s already been a wild year — and the market is in a very different place today than it was just about seven short months ago.

One more quick thought before I dive in…

These three questions feature different market themes. But they all have one thing in common: they’re some of the messiest trends I’ve discussed so far this year.

I always run the risk of being early… or just plain wrong. Time will tell. I still believe it’s important to review and revise these thoughts as the market shifts and new trends evolve.

Where’s the Rotation?

Tech stocks finally stumbled.

Many of the newly dubbed Magnificent Seven mega-caps have stopped posting new all-time highs and are now beginning to churn. The market-leading semiconductors have slipped from their highs. Even the tech growth names are faltering as Cathie Wood’s ARK Innovation ETF (ARKK) has dropped more than 6% in just three trading days.

Don’t get me wrong — there’s no reason to get bearish right now. But I’m sure there are more than a few investors who have patiently waited for a pause in some of these frothy tech leaders. If you missed out on the bigger rallies during the first half of the year, an orderly pullback or extended sideways consolidation could make a great entry point for new positions.

A little market rotation would also be a healthy development for the new bull market. Riding the tech snapbacks has been a great way to make money in 2023 But as some of these leaders become more overbought, I’ve been patiently waiting for some other strong trades to begin bubbling to the surface.

I’ve been waiting patiently for the first half winners to stall, while different stocks and sectors take on short-term leadership roles. With market leadership still not far from its highs, we might be witnessing the early stages of this phenomenon — something I’ve been writing about since before summer officially began.

Can Precious Metals Trend Higher?

Bak in early February, I wrote that gold was already becoming one of the most frustrating plays on the market. The promising precious metals rally off the October lows had just hit resistance below $2K and was beginning to unravel, sending gold lower for four straight weeks.

Little did I know this frustration would continue — and become even more intense in the weeks and months ahead. Even as gold futures managed to get off the mat and rally into the spring, they have not been able to hold above $2,000 for any meaningful amount of time.

The shorter-term trend is sideways. Price is all over the place. The only saving grace for gold is that it hasn’t completely broken down following a test of $1,900 back in late June.

Precious metals have taken their sweet time to get their act together. Months later, they might finally have a catalyst.

The US Dollar index has finally broken down below 100 for the first time since early 2022. It’s rallying back to the scene of the crime this week – but the damage is done. If it fails and begins to trend lower again, precious metals should have the fuel they need to attempt another breakout.

The only issue I have is that gold and silver’s reaction to the initial dollar breakdown earlier this month was more subdued than I expected. Still, I’m ready to jump back into the miners if and when we see another push toward those highs. Better late than never!

Why Can’t Bitcoin Join the Party?

My latest Bitcoin strategy has been to buy the rip after the dip. 

This strange pattern has worked for most of the year. You should know the drill by now: crypto flashes a false breakdown, only to rip higher after shaking out anyone who bought early.

There’s only one problem…

We’ve seen plenty of dips lately — but no rips! Bitcoin has failed to extend beyond $30K, even as tech-growth and the mega-cap tech leaders have dominated the market. Yes, we’ve witnessed constructive consolidation above $30K going back to late June. And earlier this summer, I noted there’s plenty of room overhead for Bitcoin to extend higher if it can hold the line.

But Bitcoin is threatening to break lower as it slumps toward $29K and one-month lows. Maybe it’s just another fake out that will lead to an unexpected, late-night breakout. But I’m not going to attempt to front-run an upside move here…

I’m not ready to bury crypto just yet. But I do think it’s approaching its last chance to wake up and participate in the broad market rally. If we don’t see a big rip soon, those June lows near $25K are in play.

What do you think? Can Bitcoin survive? What about gold? Will we finally get that rotation we’ve been waiting for? Let me know by emailing me here.