6/17 Daily Plan: Unlimited Green for U.S. Markets?
Unlimited Bullishness
Hey Everyone -
In this note, I’m going to provide some context on how I view the market and what are some ways to think about positioning as the markets trade at stretched highs.
Context
NQ (Nasdaq-100) and its QQQ ETF counterpart have been the largest beneficiaries of an uncertain environment. In some sense, NQ has become viewed as a safe harbor of earnings quality/growth given that the latest earnings season validated the Top 10 companies within the index with the following attributes:
Beat & raise on earnings guidance
Increased total addressable markets (thanks to AI)
Upped analyst price targets post earnings
We can see this to be true as many of the stocks in my DCF Conclusion Studies, like a chess game, moved up a notch from my Base Case now closer to/at near my Bull Case (depending on the specific stock).
My methodology is very simple - I follow the index’s top 10 stocks closely, do DCF Conclusion Studies on them, and that will give me very good understanding of the index behavior itself in terms of upside potential/downside potential.
For NQ/QQQ ETF, the top 10 stocks represent 50% of the entire ETF. The other 90 stocks within NQ contribute the other 50%.
So from a market-makers standpoint, all they have to do to squeeze NQ higher is to lift the Top 10 stocks.
The thing about “Concentration” in an index is that it easier to lift it.
Case in point, the Russell 2000 is much harder to squeeze because there are 2000 stocks. It would require some serious inventory and buying power to lift 2000 stocks.
Hence, the Russell 2000 (RTY) acts like dead money on most days (until macro data gives any glimspe of hope for rate cuts to relieve the Russell’s debt-laden companies). For this reason, NQ is the best asset in the game (as of now).
One upcoming timeframe that I am watching is June 30th-July 7th.
By now, I would think most of us in the U.S. have seen/heard about the uncertainty brewing in Europe, particularly France. I expect volatility to pick up even more in the Stoxx 50 (Euro Index) closer to this timeframe.
Global credit agency S&P cut France’s long term debt to AA- from AA ahead of the election.
Volatility from Europe will make its way into investor positioning for U.S. stocks.
Leading up to this timeframe, it should be a good test to see if NQ/QQQ ETF continues to be perceived as a safe haven.
I stay constructive on tech, but expect a more meaningful Red Day (around ~1%) in the coming 2 weeks. This Red Day will likely be a good intraday opportunity for bullish scalping if low of day is found as an entry.
Positioning Thoughts
At market highs such as this, there are several ways to think about positioning.