Nothing has changed

S2N Spotlight

The market was strong yesterday, reversing some of the bearishness that has been creeping in, with many market strategists fearing an AI bubble and a data centre overbuild.

Let us take a very sober look at where we are with the S&P 500 going back to 1980.

Max drawdown: -56.78%, Current drawdown: -2.70%, Average drawdown: -9.75%
Percentage of time in 10%+ drawdown: 34.97%.

We got to a -4% drawdown before yesterday’s market rally. What do the stats say going back to 1980? We are exactly 30 days away from Christmas. What is the probability of making a new all-time high for the Xmas holidays? Putting seasons aside, there is a 33% probability. The odds naturally get better the further out we forecast.

The reason why I share this and the long-term bullish trend chart below is because there are no definite answers as to what is going to happen over the next few days or weeks. All the talking heads can say with certainty is what they want you to believe.

We are at an important juncture in this cycle, and it could easily roll over today. Nothing has changed in the last 24 hours. If you want to believe that this cycle has legs despite the valuation concerns and the overwhelming government debt burden and broader geopolitical tensions, then I won’t be the one to say I think you got it wrong. I will say this is a wonderful opportunity to harvest profits from an incredible run that is well past its prime in my not-so-humble opinion.

S2N observations

I am not suggesting this is the best long-term trend indicator. For now the trend remains bullish when using all 3 major indices to confirm a bull or bear market.

I have been a believer for more than a year in the yield steepener trade. Some of the variations have been struggling to get going. I think all 3 spreads should be higher a year from now as the government issues more debt to pay for its debt and inflation continues to be a factor.

Not surprising that the 30-year would have the biggest spread.

One of those stocks that tells you a lot about what the appetite for risk is Japan’s Soft Bank. This is a chart of its US ADR. The recent selloff is nasty. Let us keep a close watch.

S2N screener alert

Google was the only 3-sigma mover today across my entire watchlist. I suspect the new AI model they released has something to do with it. I believe Sam Altman was trying to fire up the troops to get more competitive with OpenAI models. I haven’t tried Gemini in more than a year; I may need to consider bringing it back into the fold.

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