Summary
- The S&P 500, SPY, Nasdaq 100, as well as other major stock market indexes put in a textbook blow-off top a few trading sessions ago.
- Almost 60% of SPY and the S&P 500 is composed of just 3 sectors, technology, financials, and healthcare.
- The leaders in the recent melt-up that elevated SPY by about 45% over the last 13 months are likely to lead the market substantially lower when the meltdown occurs.
- Numerous fundamental indicators are suggesting that the economy is likely to slow further, and 2020-2021 growth and earnings estimates are likely too optimistic.
- I'm not buying the recent rebound, SPY and stocks in general need to correct, as I see more downside risk than upside potential in equities right now.
- This idea was discussed in more depth with members of my private investing community, Albright Investment Group . Get started today »
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Blow-Off Top Could Send Stocks Lower From Here
The S&P 500 (SP500), SPDR S&P 500 ETF Trust (SPY), and other stock market indexes and major averages are coming off extremely strong gains achieved throughout 2019. S&P 500/SPY gained roughly 30% in 2019 alone. In addition, the S&P 500/SPX was up by roughly 3.5% in the first several weeks of 2020 alone, before the recent correction began.
S&P 500 1-Year
Source: StockCharts.com
Generally, stocks have done extremely well over the past year or so. Since our 2018 December 26th “Watch List” or buy list article was released, some of the names on the list have appreciated dramatically over the last 13 months or so.
For reference, since the December 26th call:
Apple (AAPL) has surged by 117%
Tesla (TSLA) is up by 90%
Nvidia (NVDA) has gained roughly 90%
Facebook (FB) is up by about 75%
Netflix (NFLX) and Alphabet (GOOG) (NASDAQ:GOOGL) are each up by around 50%
Financials, including Goldman Sachs (GS.PK), JPMorgan (JPM), Citi (C.PK), and KeyCorp (KEY) are all up between about 38% and 56% over the last 13 months.
Also, if we look at major stock market indexes/averages since the December 2018 bottom (trough to peak):
S&P 500/SPY: were up by about 43-45%
DJIA: was up by 35.5%
Nasdaq 100 (QQQ): has surged by 59%
Russell 200 (IWM): gained 37%
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