#986 - Is This Rally Here to Stay? | with Mark Ritchie II

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0:57Is this stock rally here to stay? Welcome to Real Vision Daily Briefing. It's Monday, March 4, 2024. I'm Ash Bennington. And I'm joined today by Mark Ritchie II, analyst at Minervini Private Access. Mark, welcome back to the show. Good to see you, Ash. Great to be back on Real Vision, as always. Great to have you back. Man, we were just champing at the bit to get on the air. We were having a great conversation about what's happening in these markets. Obviously, lots to talk about here today. Big picture, Mark, what's your view of what's happening right now? Well, I want to say bull market everywhere.

1:32But listen, it's clearly a new bull market in stocks. And what I mean by new, say in the last few months, or confirming what is a new bull market. Obviously, then of course, we've got GLD closing at new all-time highs. That's certainly noteworthy. Bitcoin within an eyelash of that. I just think, depending on your time frame, at least in equities, and we can start there, we're still early in the intermediate to longer term, but short term, we're definitely stretched and extended. And that's a positive or negative, depending upon, again, how long you are and sort of your risk tolerance. So yeah, we can talk about, you know, which element of that you want to tackle first.

2:20Gosh, all of it, Mark, this is great stuff. There's so much to talk about here. First, let me pick up on something you just mentioned when you're talking about this idea of intermediate short-term versus long-term. Talk a little bit about how you quantify those time horizons and what you mean when you say potentially overextended a little bit here in the short term. Well, listen, I think maybe even the last time I was on was right around sort of the bottom in November where the market rallied and everybody was really skeptical, pessimistic, negative, general consensus was, This is even all the breath positive thrust we had off the lows was not taken to be very positive.

3:02And then in relatively short order, we had a strong lockout rally all the way into the new year. Yes, some of it was based upon the Fed pivot, of course. We can get into FOMC policy. But the reality is the market has been extremely strong. and new all-time highs on the NASDAQ, new all-time highs on the S &P 500, everything but the Russell and sort of in sequential order. What's ironic is the NASDAQ is a really good example, made new all-time highs and sentiment didn't get overly bullish, constructive, but nothing close to a top. And then you had people calling it a bubble. How does the stock market go into a two and a half year bear market, make new all-time, the minute it makes new all-time highs, we have a bubble.

3:50And there's a lot of sort of armchair macro folks that are saying, you know, this is some type of a bubble in equities. And I'm saying, you know, according to our work, we just don't see that. Yeah, go ahead. No, I was gonna say, well, let's talk about exactly why that is. One of the things that I think has a lot of folks spooked, why this rally is not as beloved as it might be, perhaps is this idea of market breadth, the idea of the MAG-7 kind of crowding out everything else in the space. Let me just run through some really just a course measure here, right? So Dow Jones Industrial Average trailing 12 months, it's up about 17%.

4:30S &P 500 up 27 % or thereabouts just under. NASDAQ 100 trailing 12 months up over 48%. What you see here is this big cap tech rally disproportionately pushing the NASDAQ 100 higher. Talk a little bit about market breadth. Talk a little bit about the concerns that maybe some folks have. I know that you are not just bullish, but you have some positive sentiment view on market breadth. Talk a little bit about why that is and how you know what you know. Well, first of all, remember, risk management always comes first. So I have really strong opinions on a lot of these things. But when the information changes, I change accordingly.

5:14And I was just as potentially skeptical of some of the rallies even we had last year. And all the way back to June of 23, we had this strong move off the lows. Our work at MPA basically called for a bottom. All of our long-term models went on a buy. But throughout the duration of last year, the breadth was pretty lackluster. And the biggest thing was you'd get these rallies, you know, and then they would fade. Specifically, the only area that was holding, to your point, was sort of that mega capped, you know, call it the mag seven, however you want to define it. Very small niche. And you're absolutely right.

5:53Listen, the concentration. Yes, this market is very concentrated in certain areas. But, you know, this chart that I have up here just shows, you know, new 52-week highs all last year was never very high, peaked in the summer. And you can see an entirely different dynamic. That's new stocks making new highs relative to new lows on the NYSE, which is not cap weighted the way some of these others are. The percentage of stocks in long-term uptrends, while on the NASDAQ, it's still only, say, 55%. It has held. But then, say, on the NYSE, you've got 70 % of the market now that is in new long-term uptrends, which is constructive.

6:39Now, I guess I'm trying to parse out in my head, I see this broader breath in terms of long term uptrends, while still seeing this traumatic outperformance. I mean, I guess the answer there is, you can be you can be weekly positive in an uptrend versus the kind of insane level of price appreciation that we've seen in the MAG seven. Yeah, absolutely. And listen, the other thing I want to say about even these breath divergences and that kind of thing where, okay, the market's trending up and the breath is deteriorating. And this is where it's sort of like context is everything. And the first thing, though, I would say is a divergence in breath is not always the best timing indicator.

7:19In fact, it usually isn't. It's just an indicator, okay, that let's say from here, we get more concentrated. I would continue to get a little bit more concerned, not saying that that can't happen. And what I often say is any divergence in the market tends to correct itself through time or price or both. But it doesn't mean that, you know, tomorrow the market has to fall if there's, you know, some type of a negative divergence or a positive one, that means it has to rally the next day. It's just sort of telling you that, you know, under the surface, this is going to have to be corrected at some point.

7:54Now, what I wanted to say, though, is if you look at, I don't want to say that the concentration and breath is sort of old news. What I'm saying is there have been more groups. You're right. It is old news. It is a bit of old news. But what I'm saying is it has at least expanded some. So when someone says, well, you know, Invit is the only thing pulling the market higher. That's just not true. If you look across, we've got multiple other groups, even in tech, that are doing well. Are there still areas that are lagging? Yeah, absolutely. And this is where I was saying, look, in the short term, all the leaders, all the leading bulls are well out of the barn.

8:36But that doesn't mean that this rally is on thin air or thin legs. So this is where we want to watch from here? Do we get confirmation? And does risk kind of go out the curve? So if the mag seven is the least risky equities, which clearly that was where the money started even last year, does that money rotate other places? And I'm saying it has gradually been doing that. Maybe not as robust as even I would like. Well, guess what? You got to trade and invest in the market that's in front of you, not the one you want. And you got to play the cards you're dealt. And what I'm saying is if you actually look, especially since November, it has broadened to some degree.

9:20And we've got other areas, areas of consumer retail that have done well, other areas of software that have done well. And anybody who's followed some of my work for a while knows, I like to look at the Russell and sometimes the MidCap to sort of see, can we get money then rotating other places? Uh, well, the S and P mid cap just made a new all time high closing, you know, Friday today. That's bullish. Now that doesn't mean we have to go off to the races, but it means at least money is rotating, uh, you know, to riskier areas. If you will, the Russell 2000 has been in this massive base for quite some period of time.

10:01Now it has lagged badly, uh, for good reason. And here's another, I don't want to say old news, but if you run through the reasons for why the Russell has lagged, okay, what areas of the stock market are most sensitive to high rates? Smaller cap companies who cost a capital is more impacting their business. Is it possible that after 18 months, that news is already in the price? Certainly possible. So you have to ask yourself, if small caps start to break out here, everyone's, I think a lot of the fundamental macro guys are going to hate it. And I'm saying, especially if they start to lead and money rotates where maybe the mag seven pauses, pulls back, you know, generally, gently, not violently.

10:50And you get, you know, areas like the Russell and the mid cap start to move. That would be the healthiest sign in my view. Doesn't mean it has to happen tomorrow. but if that really gets in gear, you're going to see breath then improve from here. It's using the analogy of like the party, you and I are hanging out at a party and we think it's late and the party's starting to die down. Then all of a sudden waves of new people start showing up and realize, well, maybe this party is going to reignite itself and keep going. That's precisely what will happen if the mid cap and the Russell really start to break out.

11:28And whether or not that's for market is always forward looking. So if the Russell's looking out six to nine months, and starts moving higher, it's at least telling you that rates certainly aren't going up and that potentially recession is off the table. And if you look at some of the cycle work, we also look at for in terms of this year, the fourth year presidential cycle tends to be quite constructive for equities, especially in the back half of the year. Doesn't mean we won't pull back. I want to be clear about this. And this is where I was saying, depending on your timeframe, a lot of things are extended right now.

12:03So everything you buy, you've got to be cognizant of the fact of a pullback would be normal at this point. But our general work would suggest that pullbacks are likely to be shallow and potentially viable. Furthermore, if you look at, say, cycle work of what is equity performance after the first rate cut, if there's no recession, that's a big if. If there is no recession, equity performance following the first Fed rate cut is quite robust for the first six to 12 months. So I'm saying it's very, very possible. And my base case would be that it's a new bull market in equities. And we're in the early innings, if you will.

12:47And so pullbacks should be shallow-ish, mid-single digits, probably no more than 10%, and seen as a potential buying opportunity. But this is where right now, you're seeing a lot of the best names that look, wow, they've gone too high. Well, I would wait for them to rebase. I don't ever like to chase in our general philosophy is buy, write, sit tight. If you bought correctly, or for those who are already along this market thinking, can it continue? I'm saying, yes, it can absolutely continue. And that's where I would be looking at, say, the mid small cap areas. Look, if those don't get involved, and we continue to see just more and more money chasing fewer and fewer names, then I'm going to continue to stay much more mid-gear on this overall rally.

13:40Still doesn't mean, though, that you shouldn't stick with potential names that are acting well and that are really breaking away here, because I still think we're early. And if you study just historically, after the markets have multi-year, 20 % plus corrections, and then make new all-time highs is usually not coincident with peaks or tops. Furthermore, I would say even sentiment. Sentiment right now, it's stretched, but not extreme. And nowhere that would lead me to say we're close to a peak or anything like that. We're going to take a quick break and be right back with more of the day's top analysis on the Real Vision Daily Briefing.

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16:13Well, Mark, there's a nice, crisp, definitive position there. We appreciate you taking it. By the way, you mentioned something earlier. You said the perception that this market is on skinny legs. Let me show you my favorite meme of the week. I don't know if you've seen this one yet, but this is the great meme that's going around right now on Reddit and elsewhere. I'll just tell people, if you're listening to this on audio, it's this picture of this rickety looking third floor deck that's been built onto a house that's being held up essentially on two stilts. And they're labeled NVIDIA and Taylor Swift.

16:49Well, obviously, that isn't a deck that you and I want to be hanging out on. And I'm saying that I think that there's more support than this picture would generally believe, at least for the stock market. I'm not saying I'm not an economist. is it possible we're still going to have a recession? Yeah, but I'm saying the market seems to be saying or discounting the fact that we are not or that if we are, it is going to be very mild. Listen, should price action dictate otherwise? That's where you adjust. And look, if we see another one of these periods where things just come crashing back down, that's where you adjust.

17:36I don't have a crystal ball, and neither does anybody else, which is why I'm always making calculations in real time. But I'm saying, look, the trend is your friend right now. And it's not just in the US. You've got a number of other equity markets. Europe looks good, technically. Japan and other parts of Asia, minus China, looking very constructive as well. I'm not going to say China is going to join the party. But if they do, What's that going to do for risk on? I think this is not just a US-based phenomenon. Well, Mark, you are a US equity specialist, which is why we wanted to spend so much time talking about this particular topic.

18:16But you broaden it there, and there are a lot of other things happening. Let's do a quick speed round, touch on some of the other things that are happening in these markets. Bitcoin, gold, this stock, a New York community bank core that's caused a bit of concern about lending standards? Where do we start? Well, let's start with gold, actually. Let's talk a little bit about gold. Obviously, all-time highs there, as you mentioned. Let's talk a little bit about that price action. Sure. So let me caveat by saying a few things. One - By the way, 2115 right now on my screen right now for price of gold.

18:53Right. So if you look at the GLD, which is a little bit, I don't want to say it's sort of the retail vehicle for tracking gold. Friday closed, close to, I think it was an all-time high close. And then today, certainly an all-time high close. And what's most interesting to me is... For the folks who don't know, this is the Spider Gold Trust. It gives retail investors access. They can buy it as an ETF much easier to own in your brokerage account. Right. And so I didn't check to see where did spot gold, has that made a new all-time high? The point I want to make though, is it seems to, when a market starts making new all-time highs and not a lot of people are talking about it, that gets my attention.

19:32Where mid of last year, it looked like gold had a big false breakout and then sort of failed, sort of a big head fake. Gold's had a number of big head fakes. The Russia invasion of Ukraine was one. And a lot of people following the gold market have been calling, there's what I call like the mother of all cup and handles that suckers over a decade long. That is a massively potential bullish implication on that chart. Now, I don't trade on decade long time frames. But listen, when something's under own and starts moving, that's often it catches people a little bit off guard. The other thing is we sort of had a big shakeout on that ISM news a few weeks ago, gold closed poor on the day, reversed for the week.

20:21I think it shook out a number of the weak hands, and now it's starting to move higher. The$64 ,000 question, of course, is, is this just another head fake? And is gold sort of lost some of its luster because of Bitcoin? And you hear people making that argument. Well, Bitcoin is the new gold, and gold isn't going to as much love, I would look at them sort of independently. And again, I like the risk reward here in terms of if this follows through, positioning is not very long gold right now. Sentiment on gold miners is awful. It's just sort of been one of those areas that a lot of people have disappointed a lot of folks.

21:02So could it easily start to move? And again, if we are at the peak of the rate cycle, that would be bullish for precious metals. Again, gold is not an area of specialization. I've got chopped around myself in this a few times trying it. But again, I see a chart formation like that with a decent risk reward. I am interested in following it. Full disclosure, I have a small position. If we break out further, I may add or see how it acts from there and look for another low risk entry to sort of extend leverage. But I think it should be on people's radar. But again, with everything else sort of going on, we can get into Bitcoin next.

21:38There's just been other areas, I think, that have gotten more attention. And even I was a little surprised going Friday. Holy cow, gold's starting to rally here. What's going on there? Closed on okay volume. And sometimes those are the best rallies, meaning it doesn't look like it's the time people have given up on the trade and sentiment isn't overly bullish. And then all of a sudden, everybody has to sort of scramble to put their gold back on that they sold because inflation was coming back and that type of a thing. So if you believe price is truth, which at least to some degree, it always is in the near term, gold may be sending us a signal here.

22:15And it also could just be, again, flows. How many folks are sitting there going, look, maybe I want to buy a little Bitcoin, maybe I want to buy a little gold, maybe I want to buy a little anything that gives me a little protection against, for lack of a better word, dollar denominated or their local currency denominated assets. And gold has always served as a good hedge against that. Well, only for about 5 ,000 years. Well, certainly longer than Bitcoin. I know that that's always, some people think it's one or the other. I think, again, I don't think you have to be tribal about gold or Bitcoin.

22:51I think you can own both, have risk management plans for both. And I am long and I would be long here. Well, unfortunately, tribalism just seems to be where the country is at right now. But it's silly to look at investments the way people look at politics, at least in my view. Let's talk a little bit about something you set up there rather nicely, which is what's happening in terms of flow of funds and the digital asset space. Boy, I just want to read through some of these prices because crypto right now is just so hot. First and foremost, Bitcoin above 76 ,000 right now on my screen. Ethereum over 3 ,500.

23:26Solana over 125. XRP getting close to 65 cents. Cardano just crossed 75, excuse me, 77 cents on my screen. I mean, there's just a lot of green here. Bitcoin up trailing seven days, 23%. ETH up about 12 % trailing seven days. I mean, these are big moves. We're not at all time highs. I don't think on any of those coins, just because of the cyclical nature of this space. Boy, but Bitcoin is really close within striking distance of that$69 ,000 high. Right. I mean, yeah, if the title of today's show might be sort of new all-time highs everywhere, because that's kind of a little bit what it feels like.

24:06And we were talking about this beforehand. There's a lot of points I would make specifically about just focusing on Bitcoin. And the first would be this dynamic that's going on with the ETFs. And I think a lot of people in the crypto space who I really respect, so not to mischaracterize anything that I'm saying as being that they don't know what they're talking about in terms of the technology and all those kinds of things, I think Bitcoin is a very strong fundamental argument. And if you believe, you know, whether it's digital store of value, all those different things. I think you have to sort of put that to the left for now.

24:48Because I think this move that we're seeing in Bitcoin is much more dynamic, specifically about flows and plumbing. We're going to take another quick break and be right back with more of the day's top analysis on the Real Vision daily briefing.

25:06By the way, I've got to say, Mark, before we got started here, we were talking about this. You gave an absolute clinic on the way markets work. By the way, to reinforce the point you just made, the two are not logically exclusive here. You can really be very bullish on the long-term technology of crypto, but also say there's a phenomenon happening right now in markets or seems to be happening that may, highlight may, be driven by the underlying underlying dynamics of the way markets work and about the way assets are managed in the United States. Boy, you were so eloquent on this. Give us the case.

25:39This is such an important point. Yeah, well, listen, what ultimately drives prices, you hear people all the time saying, oh, why did XYZ go up today? More buyers than sellers, right? That's always, why did it go down? More sellers than buyers. But it's the institutions, the large players that are ultimately going to take these markets to wherever they're going to go. And what I want to suggest, though, is specifically the way money flows in to certain products is often going to be, not often, is the driver. And what I want to suggest is, okay, there has been very little option for exposure for certain institutions to crypto in general or to Bitcoin specifically.