When it comes to the stock market, fun little acronyms and buzzwords make me cringe.
It’s like that grueling sensation when someone runs his or her fingernrnails along a chalkboard. The reason being – when a phrase becomes so popular that everyone is using it, and when everyone’s hyped about the markets, danger lurks just around the cornrner.
In the late 1990’s, the popular phrase was the “New Economy.” Stocks were valued based on “eyeballs” and “synergy,” as opposed to… actual revenue? I don’t even know. It was a joke.
Then in 2007 and 2008, it was the “Goldilocks Economy.” Inflation was mild – neither too hot nor too cold – and “green shoots” were touted in August of 2008, like we were supposed to imagine all these little green plants sprouting out of a dried up economy. Ben Bernrnanke – whom I very openly dislike – loved tossing this propaganda around.
Both times, these buzzwords became popular right before major crashes – the dot-com bust, and the Great Recession – where trillions of dollars in wealth were wiped out in a heartbeat.
Now, another one’s popped up. Today, it’s the “FANGs” market – where Facebook, Amazon, Netflix, and Google are leading the charge! But without these stocks, the major indexes like the S&P 500 would be in big trouble. (Charles talked about this on Monday.)
And like Lance said Tuesday, our group is pretty much in agreement – the stock market is getting narrower and narrower in terms of the number of stocks pushing the indexes higher.
What concernrns me is that in 2000, the technology sector led the way. But while it was the main driver, there were still dozens of stocks pushing the market higher.
Then in 2007, it was finance – again, another sector.
Today – it’s less than a handful of stocks.
That’s a major difference from the last two crises in that the leadership of this market is incredibly thin.
So while the indexes look healthy because they’re at all-time highs, the fact that just a few stocks are leading the way means it’s much better to be defensive right here, right now…
Because by the time Facebook, Amazon, Netflix, and Google start to decline in price, many stocks will have already been crushed.
Like we’ve discussed, Rodney is riding the momentum of some of these “FANGs” in his Triple Play Strategy, but the difference here is he isn’t holding them. He swaps them out month-to-month and sells them if it looks like things are about to get ugly.
But the bigger picture is that, with the market’s leadership spread so thin, we have a stealth bear market in the making. And by the time it becomes obvious that the market is in trouble, trillions will have already been lost.
So stay on high alert.
John Del Vecchio
Editor, Forensic Investor