Market review 23.07.23

Historical timeline and the rotation underway

Hello everyone,

Today I want to discuss two big topics:

1. A historical timeline of key events for this bull market

2. The rotation process that is underway

Bull market history

If I were to hand-select all my favorite charts over the past 15 months and put them on a timeline, it would look like this:

There are five key takeaways from this timeline.

1. Bottoms tend to be a gradual process. The mountain of bullish evidence came in 3 waves.

   1. Apr ‘22 - Jun ‘22: just a few markets hit major supports.

   2. Sep ‘22 - Jan ‘23: bullish positioning, earliest breakouts, and rare breadth thrusts.

   3. May ‘22 – Now: Frequent breakouts, high momentum, & broadening participation.

2. Bullish evidence came from a wide range of markets (not just Mega-cap Tech):

   1. Sectors: homebuilders, steel, tech, financials.

   2. Styles: small-caps, value, dividend stocks.

   3. Countries: Japan, India, Mexico, Chile, Argentina, Greece.

   4. Assets: Bitcoin, Junk bonds.

3. Markets are forward-looking: Home builders stabilized just a month into the steepest rate hike cycle. At the time, this was one of the most counterintuitive things the market did, and it shows why we focus on price above all else!

4. Patience is critical. If you bought the breakout in homebuilders in Nov ‘22 rather than on support in Apr ‘22, you didn't miss much upside but saved quarters of sideways chop. I discussed this in more detail in an earlier post (see section “Type 2”).

5. The earliest breakouts are this year’s big winners. For example, Homebuilders & Mega-cap Tech made breakouts in the Winter, followed by speculative tech in recent months, and now the Dow and Value are breaking out. The next ones to watch are small-caps, financials, and dividend ETFs.

The last point leads me perfectly into the next section.