Mexican bloodbath

Not a literal bloodbath.  A figurative one.  I'm talking about Mexican stocks.

The country has elected a new President, and traders are not optimistic about her.  Mexican stocks got a bit of a haircut on Monday.

Here are the top losers from Monday's trading session.  Notice all the Mexican companies:

 

 

Mexico has enough problems already, and now this presumably disastrous new leader will... well, we don't know what she'll do.  Latin America can be a pretty wild place, politically speaking.  Anything is possible.  But if the financial experts are pessimistic, and they obviously are, then I'm inclined to be pessimistic too, at least until mitigating evidence appears.

I own some Latin American stocks, but no Mexican ones, and it looks like I won't be picking any up any time soon.

The A.I. Boom... or Bust?

It's no secret that the recent gains in the stock market have been concentrated in the A.I. sector.  It's been something like the Dotcom Bubble, though not anywhere to that extent.  Lots of enthusiasm and hype, high valuations, and mixed results when it comes to actual earnings.

The S&P 500 is top-heavy with A.I. stocks, hence its performance this year:

When we equally weigh the components, removing a little bit of the A.I. bias, we get results that, while still bullish, are a little more modest:

When we look only at small-cap stocks, completely removing heavy-hitting companies like Nvidia, Microsoft, Amazon, Google, and so on and so forth, we get results that are a bit more concerning:

The Russell 2000 index is about where it was at in late December.  It's gone sideways for this calendar year so far.  Whatever "bullishness" exists in the stock market, it seems to be a phenomenon of the large caps, not the small ones.  The A.I. boom has not trickled down to the little guys.  When you factor in inflation, the small caps are actually down slightly.

I've made this comparison between these three indexes in previous blog posts, but it's always good to revisit it every now and then to see if the prevailing patterns are still holding.  And that seems to be the case.  The "bull market" is an A.I. bandwagon ride, nothing more.

Now, Memorial Day weekend has just passed us by, so summer has now officially begun, which means travel season is here.  Maybe we'll see something interesting in the vacation-related economy.  I don't know.

There's a Federal Reserve board meeting in the middle of June.  Lots of people have been expecting an interest rate cut at that meeting.  I'm a bit more skeptical.  I'm not sure if a rate cut is priced into the market or not, though.  The Fed might remain hawkish on inflation, but the market might not be bothered by it much at all.  We'll just have to see.

Oil and gold have risen in recent months, but not as much as I would have expected given the geopolitical realities.  My portfolio is still oil-heavy, though.  As long as there's a "war on oil" in this country, I expect non-American oil companies to benefit.  The modern world runs on oil whether people like it or not.

What does the summer hold?  Well, I don't know.  Summer is usually a dead season for stocks, though there has been the occasional bull-market summer before.  I'm inclined to say the action will be mostly sideways until evidence to the contrary presents itself.

BRICS summit in October in Russia.  If there's going to be any major global economic news, I expect it to happen then.  That at least gives us the whole summer to chill out, though, so that's what I intend to do.  I recommend everyone else to stay cool, too.  There will be plenty of things to panic about in the fall.

Testing resistance and oscillators

So we've had a bit of a pullback in the stock market in recent weeks.  We're going to look at three charts: the S&P 500, the S&P equal-weight, and the Russell small-cap.

First, the S&P 500:

 

As we can see, this index has had a nice run in recent months.  It broke through the 50-day moving average back in November and never fell below it, not even once, until mid-April.  This month has seen it correct a bit, but it hasn't actually declined that much.

There are two interesting indicators on that chart: the 50-day moving average, and the MACD oscillator at the bottom.  The 50-DMA is acting as resistance now, and indeed yesterday's trading action seems to have risen to that line and bounced off.  That's a bearish sign.  The other indicator is the MACD, and it clearly shows an oversold condition and an imminent signal line crossover.  That's a bullish sign.

Which indicator will prove to be the stronger force?  I don't know, but if the index fails to break through the 50-DMA this week, then it's probably heading further down.

We see a similar pattern in the S&P equally-weighted index.  It rose to the 50-DMA and then was stopped cold, signalling bear, while the MACD is signalling bull.

Also of note is that this version of the index hasn't risen as much as the $SPX version.  That's because $SPX is heavily weighted towards a handful of giant companies that have shot up due to the AI craze.  The equal-weight version isn't as AI-heavy, so its gain has been more modest.

And we see this difference even more clearly when we look just at small-caps.  Here's the chart for the Russell 2000 ETF:

This index hasn't gone anywhere this calendar year.  It's where it was back in December.  The MACD is signalling the same thing it's signalling for the other charts, but the 50-DMA hasn't been tested yet.  There's still some white space to cover before any bounce or breakthrough happens.

It's nearly May, and the old saying "sell in May and go away" must be considered as a possible influence on next month's action.  There's also the inverted yield curve, a real estate index that peaked in December, banking troubles as a result of higher interest rates, and so on and so forth, all bearish.  On the other hand, there are multiple powerful inflationary forces that might force prices higher, so the market might go up in spite of all the forces to the contrary.  We should know over the next few weeks whether this pullback is just a consolidation or if it's the beginning of a serious correction.

The Indefatigable Bull

This stock market continues to defy my attempts to figure it out.  Since early November, it's been practically a straight line going up at about 25 degrees above horizontal.  I've never seen a cleaner bull market trend line.  Frankly, it's too perfect, and I can't help but wonder how much of it is the result of human activity and how much is just bots and algorithms making automated trades.

Gold continues to hit new highs.  It's been doing this for the past few weeks.  The price of everything seems to be climbing at a disturbing and unsustainable rate, so naturally the powers that be say that inflation is under control.  (That was sarcasm in case you weren't sure.  Inflation is actually quite onerous, and lots of people are suffering because they can't afford anything.)

I own several South American stocks, so I'm now keeping on eye on the political squabbling that has erupted on that continent recently.  The embassy raid in Ecuador is just the latest in a series of dust-ups.  In all the talk of a potential World War III that's been going on lately, commentators usually focus on Russia, Ukraine, NATO, and the Middle East.  No one is talking about WWIII breaking out in South America, and that makes my inner contrarian think that's where it might start.

Stock market crashes often happen in September and October, but if I recall correctly, April and May are the next best months for it to happen.  If we can make it to June without a crash or correction, then maybe we can have a soft-landing consolidation or something during the summer.

In the meantime, though, the bull market seems unstoppable.  I'm not selling out.  I'm keeping my positions, collecting my dividends, and waiting for the wave to crest.

But crest it must, eventually, and woe to those who get caught in the undertow.

Just sent my first Substack newsletter email

Hopefully I didn't screw it up too badly.  Lol...

I'm subscribed to my own newsletter, and I got the email, so I know it went out.  But everyone is on different devices and whatnot, and there's no telling how the newsletter might display on any given machine.

Anyway, at least I got the first one out of the way.

Miscellaneous stuff

I think I'm ready to start sending out my newsletter in Substack.  TinyLetter is going away, so I had to find a replacement, and I decided to go with Substack.  There will be some cosmetic differences in the emails, but hopefully there won't be any real snags.

SpaceX is heading for the moon.  On the one hand, I'm not a fan of moon missions because I think it's just a useless rock with no real promise, but on the other hand, it's still a really cool thing to do.  I even picked up some shares of Intuitive Machines as a result of the successful launch and in the hopes of a successful landing and mission.  Which brings me to my next point...

I bought shares of a couple of stocks on Thursday.  I did this in spite of the fact that I think markets are overbought and in need of a correction.  My gut tells me that this purchase of mine can be considered a contrarian indicator; in other words, my finally giving in is what will signal the start of the decline.  Will we see a correction within the next few weeks?  I think the odds of it just got significantly better.

As part of the moon mission, the Columbia apparel company is using its Omni-Heat Infinity technology to shield the craft from the extreme temperatures of space.  Here's a YouTube video about it:

 

I like and sometimes wear Columbia's stuff, and I think this promotional venture of theirs, while admittedly a bit gimmicky, is nonetheless pretty darn cool.  By modern marketing standards--by which I mean we live in an era in which corporate marketing departments seem to be purposefully trying to destroy their brands--it's downright genius.  After I publish this blog post, I'm going to go over to Yahoo Finance and take a look at Columbia's stock info.

I've started gaining weight again.  I'm about ten pounds heavier than where I'd like to be.  I'll try to reduce that in the weeks ahead.  My overall fitness level is really quite pathetic.

I finished The Hour of the Dragon, the only novel-length Conan story by Robert Howard.  It was a serviceable enough book.  I could have done without the "he ejaculated" dialog tags and other goofy devices, but it was still a Conan story, so it still had all the awesome stuff for which such stories are famous.

Charging ahead

I just can't get a handle on this stock market.  Nothing seems to faze it, not even the usual technical indicators.  RSI over 70?  Doesn't matter, we're going higher.  Low volatility?  Doesn't matter, we're going higher.  

Geopolitical unrest increasing in various places around the globe?  Doesn't matter.  Credit and mortgage problems on the rise?  Doesn't matter.  Chinese stock market falling to lowest levels since 2019?  Doesn't--well, you get the idea.

I think there's an inflation report coming out tomorrow, so maybe that will cause a ripple.  But I doubt it.