Not only are we in a very low market to stock correlated environment, but we’re approaching WTF lows. Something I’ve warned about for a very long time, but I’ve never seen them as low as they are here.
What does this mean and why does this matter?
Like most, you’ll check with the indices to determine whether or not you should participate. However, in this environment that’s the worst thing you can be doing. Remember, the market is having no impact on what stocks are doing.
As I’ve said, with the massive trend and flows towards ETFs and Indexed products, I believe this to be part of the pain trade moving forward. I think that constant bid over the last two years also helped to mask a diseased market, in which the growth component absolutely crashed in 2014…yet the SPY stayed on a slow trend up. It helped to make participants feel good about the environment, despite the carnage that took place in individual stocks. Moving forward, I think the pain is owning the index or ETF while nearly every single stock out there has outperformed YTD.
So here we are, the rotational elements of the market have not looked healthier in as long as I can remember. Yet, because the indices never illustrated the destruction that took place underneath the surface, everyone is caught waiting for it. Truth is that they got it already. All the things I warned of last year…huge short position, lack of exposure, sentiment…whether the market belongs up here or not, the outcome was inevitable. Higher was never expected, and that’s exactly why we got it.
Booking some gains today, looking at $FCX, $TSLA, $VSLR, $BLOX.