Can the Dow and Russell 2000 stop being turds (for once)?
Parody Title: But seriously, they need to hold up.
Note: There’s some parody and entertainment in this email, especially at the end. But it does reflect my view. Hope you enjoy.
Hey Folks,
Hope everyone is having a good start to 2025. When market regimes change or big catalysts are coming up, I’ll write a very informal brief public note to share my thoughts on markets.
As the bull market enters late stage, I’ll also periodically share a few actionable ideas publicly to help everyone while preserving the full list of upside ideas for members out of fairness.
Let’s start with this morning, which I thought was pivotal from a macro standpoint. I’m going to share the highlights of the Whatsapp note I sent out the community.
Trump doing targeted tariffs rather than full on across the board tariffs is bullish. I liked upside continuation in certain names from the pre-market like AMD/MU/AMAT/SOXX/PDD. We saw Micron go from 93 in the pre-market to soar another 7% or so to 99-103. This is quite stunning considering that this was my Q1 recovery target, and MU did it in one day.
It is my belief that Semiconductors (SOXX ETF) have most durable upside as a leadership group at the moment.
Beaten down Semicap Equipment (AMAT, LRCX, KLAC, ASML, MU) has the most upside within semiconductors in the scenario of upside continuation
However, by mid-day, I felt that the broad market rally may have some type of difficulty sustaining and I suggested that chasing would no longer be viable. Going for more intraday upside from pre-market was viable even though we had a gap up. By mid-day, not so much.
Now, I’m not usually this active in sending intraday updates because lately my mantra has been to simply buy dips and then patiently hold for higher. I will send an update though if I have a “sense” that something is weird or feels off.
My read is that the S&P 500 really needs some participation from the Dow and Russell 2000. I follow the price action across the major indices, and I have to say that I was a bit disappointed by the weakness in the Dow and Russell, though I’m not completely surprised.
It is my belief that the Dow and Russell are currently “locked” into a range that isn’t sustainably breakable until Jobs, Inflation, and earnings season comes out later this month.
If we can get the Dow and Russell to actually move higher, the S&P 500 is going back to all-time highs in the February timeframe.
According to my DCF models, it is difficult to expect significant S&P 500 upside to come from the FAAMG stocks (except MSFT, which I still think has value). In other words, I’m not sure we can count on the Nasdaq to keep carrying all the SPX. The upside has to come from the Dow and Russell recovering.
As of this post, I believe there is about a 65% chance that the Dow and Russell can rally roughly > 1.75%-2.5% from here to late February. That may not seem like a lot, but for these lagging indices, it’s actually quite substantial (700 points for the Dow, and 60 points for the Russell). That type of move is enough to get the S&P 500/ES back to its pre-FOMC breakdown area of 6100.
In other words, I do think the Dow and the Russell will stop being turds soon enough.
Key Investing Resource for Readers (IBKR Supports my Research): Accessing H-Shares is available on IBKR below. Click the link to see how they support Hang Seng trading. Visiting their website to see their brokerage platform (genuinely highly recommended) supports our research efforts to give out more premium content to all. IBKR has access to H-Shares investing and allows investors to get exposure to the Hang Seng (HSI) and its listed companies. Most brokerages do not offer access to H-Shares.
If you are a public reader and would like to give us a little support to help us continue to provide high-quality analysis for all, please visit IBKR (good execution, good research, advanced capabilities).
Interactive Brokers now also has a Forecast Events feature that allows users to place bets on event-driven outcomes (like the macro events).
