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A record built on a narrow foundation… two ways narrow markets end… is this 2000 or 2023?… when in doubt, don’t guess – follow the money… Jonathan Rose’s free $10K to $100K Challenge
On Tuesday, the S&P 500 closed at a new all-time high – its first record since August 13.
But beneath the surface, it didn’t look much like a celebration. As of Tuesday’s close, just 49.8% of S&P 500 stocks were trading above their 200-day moving average (MA).
To make sure we’re all on the same page, the 200-day MA is a stock’s average closing price over roughly the past 10 months. It’s a common gauge of whether a stock is in a long-term uptrend – and for roughly half of the stock market, no such uptrend exists.
And if we look at the shorter term, the picture is also weak – only about 30% of S&P stocks closed above their 50-day moving average on Tuesday.
So, what accounts for the broad market’s fresh all-time high?
We covered the answer yesterday – tech and energy. Roughly 78% of tech stocks sit above their 200-day MAs, and energy, riding the oil shock, isn’t far behind.
Now, since we explored this in yesterday’s Digest, let’s come at this from a different angle today…
Yes, this market is exceptionally narrow – the issue is that narrow markets usually don’t remain that way for too long. Eventually, the gap between the leaders and everyone else closes.
The question for us is which way this one will resolve – with the broad market catching up to tech, or tech falling to meet the broad market.
Two ways a narrow market ends
History offers us two general templates.
In the first, the laggards catch up. Late 2023 is a clean example.
That October, only about a quarter of S&P 500 stocks were above their 200-day MAs as the “Magnificent Seven” did the heavy lifting. Then the 10-year Treasury yield peaked near 5%, the Fed signaled it was done hiking, and the rest of the market sprinted to catch up.
By year-end, roughly 90% of S&P stocks were above their 200-day MA.
In the second way that this narrow market could be resolved, the leaders fall to meet the laggards.
For example, in December 2021, the S&P notched record after record while only about 42% of its stocks traded above their 200-day MA – a weaker reading than today’s. The Fed then began hiking in March 2022, the 10-year climbed from around 1.5% to above 4% within the year, and the Nasdaq lost a third of its value in 2022.
We can also look to 2000, which brought a twist…
The tech leaders collapsed, but much of the rest of the market held up. According to S&P Dow Jones Indices, the equal-weighted S&P 500 – which gives every stock the same weight regardless of size – outperformed the standard index by 20 percentage points over the six months ending in February 2001.
So, what accounted for the different outcomes between 2023’s bull and the bears of 2000 and 2022?
Two variables did most of the work: rates and the quality of the leaders’ earnings.
In 2000 and 2021/2022, both variables worked against the leaders. The Fed was tightening, and the leaders were priced far beyond what they earned – triple-digit price-to-earnings ratios in 2000, and unprofitable “growth at any price” stocks in 2021. When rates rose, nothing was holding those valuations up.
In 2023, the leaders had real earnings behind them, and rates peaked and turned.
So, which of these two environments most closely resembles today’s market?
On the earnings side, today looks like 2023.
S&P 500 earnings grew about 52% in Q2. FactSet expects 29.5% growth in Q3, with the tech sector projected to grow earnings 65%. And as our hypergrowth expert Luke Lango, editor of Innovation Investor, recently highlighted in his Daily Notes, tech P/E multiples sit about 19% below their five-year average.
So, the key ingredient of 2000 – prices divorced from profits – is largely missing.
However, on the rate side, today looks more like 2000 or 2022.
The Fed raised rates in September for the first time since 2023, and the CME Group’s FedWatch Tool is pricing in three additional quarter-point interest-rate hikes by December of 2027.
As I write on Thursday, the 10-year yield sits at almost 5.30% – near its highest level since 2002. It’s not only above the level where 2023’s catch-up rally began, but also above the psychological “5%” line in the sand.
Is that a big deal?
As I noted in the Digest last week, “5%” is not a light switch that flips the market from “fine” to “broken” the instant we touch it. The analogy I used was that of having your house tented and bug-bombed – then realizing you left your keys inside…
Dart in for 10 seconds to grab them, and you’ll be fine. Pull up a chair and binge-watch a season of your favorite show, and it’s a very different story. The poison isn’t about the instant you cross the threshold – it’s about how long you sit in it.
The damage from high rates tends to show up down the road after companies and households refinance at the new, higher rates. So, the longer the yields stay here, the more pressure builds.
For companies that use floating rates, this recent “new normal” above 5% isn’t good news. But how many companies is that, exactly?
Well, if we look at the small-cap Russell 2000 Index, depending on the specific database methodology used by major institutional research firms, it lands somewhere between 32% and 51% according to Apollo and Goldman Sachs.
Tuesday’s back-and-forth
Let’s return to Tuesday’s all-time high in the S&P and the Nasdaq, which came with an interesting wrinkle.
Here’s Luke to explain:
Most of the rallies over the past few months have needed some help from the rate side — a soft inflation print, a weak jobs report, or a dip in oil. [Tuesday’s] advance came without any of that: the 10-year stayed elevated and oil held near $90.
Stocks rose because earnings expectations strengthened, driven by Marvell’s raised outlook, AMD’s capacity commentary, and a string of infrastructure deals.
That’s an important distinction. When the earnings side can pull stocks higher even while the rate side holds steady, it suggests the earnings momentum is becoming strong enough to absorb elevated rates.
If rate relief eventually arrives on top of that — likely tied to an Iran resolution — both sides of the tug-of-war would be pulling in the same direction.
We might think of it as two dials.
If the 10-year rolls over, the 2023 path opens, and the laggards get their catch-up rally.
If AI earnings estimates roll over, the 2000/2022 path comes into view, and the leaders come down.
If neither dial moves, we could be in for a third outcome: the market simply stays narrow, possibly for longer than people expect. But this will just add to the pressure and uncertainty – potentially amplifying the market move when it eventually resolves.
Now, nobody knows yet which dial will move first. So, in the absence of a crystal ball, what’s our best market positioning today?
When in doubt, don’t guess – follow the money
The problem is that by the time the 10-year clearly turns, or AI estimates clearly fall, the big market move is well underway. So, you’re either riding it or getting crushed by it.
But this is where we can take a page out of the playbook of our trading expert Jonathan Rose, editor of Advanced Notice. Jonathan spent nearly three decades on some of the busiest trading floors in America, including four years as a market maker at the CBOE.
Today, part of his market approach involves tracking unusual trading activity – large, unexpected bets that stand out from a stock’s normal trading pattern. These bets can signal where serious money is positioning before the news breaks.
Here’s Jonathan with why this provides a key edge:
I don’t have the most information. Nobody has the whole picture. That’s why we follow the money.
Big players position before news becomes official, and that positioning can leave footprints we can see…
It’s like a betting line for an NFL game. The line moves as money comes in. You want to understand what’s moving that line.
The same thing happens in the stock market. The market doesn’t wait for certainty. It starts repricing the probability.
Jonathan’s system now adds a second filter: Money Flow data from Wall Street veteran Marc Chaikin, which tracks whether big investors are accumulating or unloading a stock.
When you combine these two approaches, the results can be powerful.
For example, in August, Jonathan spotted a spike in trading activity in oil-services company SLB NV (SLB) and recommended a bullish trade. Over the following week, Jonathan’s recommended position gained 219%.
MP Materials Corp. (MP) was another example. Jonathan’s recommended trade returned 534% in three days.
Next Wednesday, October 14, at 8 p.m. Eastern, Jonathan will host his free $10K to $100K Challenge, where he’ll dive into far more detail about the approach behind these returns. It’s a system that he believes could help traders turn $10,000 into $100,000 in one year.
Importantly, this is not a gunslinging “swing for the fences” strategy. So, even when Jonathan spots big, concentrated trades suggesting serious money is building a position, he doesn’t treat that as an automatic green light:
…that activity is a clue, not an instruction. I still have to look at the company, the setup, and how much I’m willing to lose before I’d put a trade on.
But as you saw a moment ago, when all the signals align, the outcome can be a triple-digit winner.
Next Wednesday, Jonathan will explain more about how he spots unusual trading activity, plans each trade, and decides ahead of time what he’s willing to risk – including trades you can enter for less than $500. I’ll bring you more over the next few days, but to reserve your seat for this free event, just click here.
Wrapping up
Tuesday’s fresh all-time high tells us the market is still in bull mode. But breadth data tells us it’s climbing on a narrow foundation.
The 10-year and AI earnings will eventually decide how this lopsided market resolves. Until then, watch where the money is moving.
Have a good evening,
Jeff Remsburg
(Disclosure: I own AMD)
