Learnings and conclusions from this week’s charts:

• The S&P500 closed July down -0.1% (but still up +9.4% YTD).

• Semiconductors have seen a 20%+ correction off the peak.

• Semiconductors’ seasonality says down, volatility says up.

• REITs and defensives are sounding a cautionary tone.

• Resources capex is being crowded out by tech capex.

Overall, the carnage that unfolded last week in semiconductors is probably more likely setting up for consolidation and ranging (at best) vs the correction and resurgence like we saw earlier this year, as various risk flags continue to wave…

1. Happy New Month!  The S&P500 closed July down -0.1% on the month (vs the equal-weighted; up +0.9%, and Nasdaq; down -6.6%). This places it still up YTD at +9.4%.

Eyeballing the monthly chart you can see the May peak, but for now it’s hanging in there above its 10-month moving average, with non-tech stocks pulling their weight and helping offset some of the weakness in AI/Big Tech.

Source:  Topdown Charts Professional

2. Semis Pick-a-Path:  Semis on the other hand fared much worse, down over-20% vs June one point. Promisingly they managed a bounce off a logical support area, and 50dma breadth is looking thoroughly washed out.

But it does leave us at a pick-a-path moment; when breadth collapses like this it can end one of three ways: a bear market (e.g. 2022), consolidation (2024), correction (2025). My best guess is either bear or consolidation; we’ve had an exceptional run already, and meanwhile there are just so many macro hurdles piling up. Maybe you do get a correction situation where it punches onwards and upwards to new highs, but for now I struggle to see the catalysts for that.

Source: MarketCharts.com

3. SOX Seasonal Slump: seasonality is giving a vote to more ranging and consolidation, with a slight bearish hue all the way into October. Maybe once you get the mid-terms done, and if you can wrap up the geopolitical mess it could help clear the path higher.

Source:  @AlmanacTrader

4. Semiconductors Volatility Events: meanwhile, one for the bulls — big volatility spikes in semiconductor stocks basically served as big buying opportunities. Different this time?

Source:  @WarrenPies

5. The KOSPI Crash: the KOSPI saw a reverse crash on Friday, up +17.91% on the day, but still down over 27% off the peak. This is a classic bubble bursting situation where reckless leverage and madness of the crowd saw wild speculation in the new AI paradigm (and not helped by poor supervision; the government eagerly scrambling to try and stabilize markets on the way down, but sleeping at the wheel and even tacitly encouraging speculation on the way up).

The bounce comes off of what looks like a fairly logical support level, but it’s very common to see record breaking up days during bear markets (the biggest up AND down days tend to cluster). So I don’t think the storm has passed here quite yet. Probably needs to see another test of support and a bit of consolidation.

Source:  Topdown Charts

6. REIT Warning: I thought this was a clever observation and quite relevant given my comments on REITs last week, basically the takeaway is rising REITs can be a sign of the top (vis a vis rotation): “Not saying it's 2000 all over again. Just pointing out that when the leadership is exhausted, capital doesn't leave the market, it rotates. And one of the tells last time was the exact sector nobody was talking about.”

Read more

This obscure sentiment indicator just sounded another topping signal.

The chart shows the ratio of trading in leveraged long vs short US equity ETFs. It surges when people are disproportionately betting on upside, and collapses then greed gives way to fear and bearishness.

As you can see in the chart below, spikes in the indicator have flagged several short-term peaks over the past couple decades.

Meanwhile plunges have helped flag numerous market troughs.

Like most market timing indicators it does slightly better at picking bottoms than tops (as you might expect during a secular bull market).

The key point is it’s surged to levels last seen during the 2021 stimulus frenzy as a scramble of desperation to try and get rich “like everyone else” kicked-off in the wake of the Q1 correction. It adds to a growing list of topping signals, so I think at this point the burden of proof is with the bulls and caution is warranted.

Bottom line: leveraged ETF trading activity adds to the growing list of topping signals.

ICYMI: The Bond Bear Market (chart + survey)

In case you missed it, earlier this week I sent out a post on Topdown Charts which showed the extent of the 6-year -50% bond bear market that is still in progress… but also how it provides clues on the next steps. [Read the Post (free)]

View Post: the Bond Bear Market

Also be sure to sign up to Topdown Charts to get more macro insights & ideas for global multi-asset investors [click here].

Bonus Chart: leveraged ETF AUM

Assets Under Management in leveraged long US equity ETFs surged to a record high shortly after the market rebounded from the Q1 correction, but has since slipped back just as sharply. Meanwhile AUM in leveraged short ETFs has barely blipped up off the lows.

This is one of those charts to keep tabs on if the market does actually roll over into a deeper and more drawn-out downturn, as it will help us know when it’s “done” (i.e. when the green line comes down and the read line surges).

It also adds a bit of a cross-check to the chart above, as it showed the relative surge of assets in longs vs shorts as greed became the dominant mood.

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Founder/Editor of The Weekly ChartStorm
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VIDEO: update on KOSPI Crash [+Case Study]

This video provides a timely update on the Korean stockmarket following a -40% crash. I provide context as to what's going on (and why) + a worked example on how I approach markets (research framework).

View the Presentation: KOSPI Crash

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Learnings and conclusions from this week’s charts:

• Mag-7, the 493, cap + equal-weighted S&P500 have all peaked.

• Market messiness is coming right on schedule (seasonally speaking).

• Retail trading behavior is consistent with the hints of regime change.

• Fed rate hike risk echoes global trends, and may weight further on stocks.

• The backdrop of expensive valuations and low cash allocations is not ideal.

Overall, there has been a distinct change in tone this past week in markets, the flare-up in geopolitics is making markets wary along with rising rates and AI/capex concerns. Maybe it is passing turbulence, but this week I explore some of the issues to keep front of mind on the risk front so we don’t get blindsided.

1. Peak to Peak: the “Lag-7” have come under renewed pressure after putting in a lower high (n.b. if they take out the 25 June low, that will make it a lower high and a lower low; which is the technical definition of a downtrend, so for MAGS; $61 is the key trigger level). Meanwhile the “S&P 493” has now also peaked…

Source:  MarketCharts.com

2. Equally Peaking: looking at the S&P500 itself, in both equal-weighted and cap-weighted terms it is looking a little messier. Breadth has also peaked for now at the same level it peaked at the last two times, so it is starting to have the look and feel of what might end up being a larger correction/consolidation phase.

Source: MarketCharts.com

3. Volatility Season: and seasonally speaking it is right on time. There is a seasonal tendency for volatility to rise this time of the year. Beyond the stats, there are a few boogeymen out there (e.g. Iran/regional war risk, US mid-terms, prospective Fed rate hikes, oil and inflation risks, AI doubts and bubble-deflation risk, trade war echoes, rising global bond yields).

Source:  Topdown Charts (cross-asset seasonality study)

4. Vibe Shift: retail already got the message, the levels of retail speculative enthusiasm as proxied by flows have tapered off significantly from last year. I suspect leveraged accounts combined with losses in crypto, precious metals, and (more recently) semis have sapped enthusiasm and buying power.

Read more

Learnings and conclusions from this week’s charts:

• The cap-weighted S&P500 is being held back by semis.

• The equal-weighted is looking good, and breadth is trending up.

• The unwind in Semis and Korean equities looks bubble-bursty.

• Margin debt growth and seasonality are waving risk flags.

• Relative value indicators are also presenting an omen.

Overall, it’s a bit of a conflicting picture at the moment. On the one hand “the market of stocks” is looking great; the equal-weighted index is trending up and breadth is improving. On the other hand, semiconductors look like they’re heading into freefall, and a number of other risk flags are waving. For now these two observations can exist alongside each other, but probably one will end up speaking loudest…

1. Tale of Two Indexes: the market cap-weighted S&P500 is a mess, it peaked early-June and has been stuck below overhead resistance ever since. The equal-weighted S&P500 however has been largely onwards and upwards —which echoes the solid uptrend in 200-day moving average breadth we’ve seen.

Source:  MarketCharts.com

2. Semis Selloff: the key weak spot for the market cap weighted index is semiconductors. After rising to become close to a 5th of total market cap, and staging a 4x+ rally during the AI boom/bubble, and basically being the main driver of the market… semis have come under considerable selling pressure in recent weeks.

Source:  MarketCharts.com

3. Bubble Watch — Semiconductor Stocks: the problem is things had started to become very much bubble-adjacent. So when you see the type of price action in the chart above, and how speculative things had become, it does make you think the risk of deeper downside is a real possibility. As I‘ve said before, bubbles are dangerous for bulls and bears: bears can get left behind as the market runs further and faster than expected, but likewise bulls can overstay their welcome and be left scratching their heads as the market turns faster and furious than expected.

Source: Topdown Charts

4. Korean Crash: especially when you see the Korean stock bubble starting to unwind (half of the Korean stockmarket is comprised of a couple of large chip stocks). As I’ve said before, there is of course some truth in the bull story for AI/chips — these things always start with good reason (but they end when things become unreasonable). This is Boom and Bust 101.

Read more

Learnings and conclusions from this week’s charts:

• Speculative trading in leveraged ETFs has surged.

• Investors are increasingly all-in on stocks (portfolio allocations).

• The Fed is becoming more hawkish (echoing global pivot to rate hikes).

• July-Oct tends to be a more volatile time of the year (historical averages).

• A long-term trend change is underway in US vs Global relative performance.

Overall, a number of risk flags are starting to wave (both on the shorter-term/tactical and bigger-picture/longer-term horizons) as we head towards what has historically been a more volatile time of the year.

1. Leveraged ETF Trading: after the healthy correction of Q1 and subsequent confidence boosting buy-the-dip rebound of Q2, speculative trading has surged. As such, the leveraged ETF long vs short ratio is now in warning territory.

Source:  Topdown Charts Professional

2. Allocations vs Sentiment: but here’s where sentiment and positioning get interesting, while investor portfolio allocations to stocks are hovering around record highs (i.e. what they are doing), surveyed sentiment is only mildly bullish (i.e. what they are saying). I would say actions speak louder than words here, and the actions say investors are basically already all-in.

3. Fed Hawk Rising:  as for potential risk catalysts, the Fed appears to have drifted firmly toward the hawkish side (and to be fair that is where the data, which Warsh says he is going to be more dependent on, is pointing). And it is already the global direction of travel, with rate hikes dominating vs cuts across the central banks I monitor.

Source:  @LizThomasStrat

4. Tis the Season for Volatility: historical seasonal patterns point to higher volatility in the coming months, and I would have to say the sentiment/positioning and potential macro catalysts sure seem to line up with that.

Source:  @itmrandy

5. Household Asset Allocation: as a point to ponder, the average household now holds more of their wealth in equities than real estate. This leaves us in an interesting situation where the next major market meltdown could have real economy impacts through negative wealth effects (and confidence) …and the next major market downturn probably only happens when the economy rolls over or a crisis precipitates (so it becomes a bit of a negative-spiral flash point risk).

Source:  @TheStalwart

6. Bubble Vision: one clue that you’re in a major bubble is prices going up 10x in real terms. For global semiconductor stocks they’ve already leaped that hurdle. Similar to some of the other warning signs we’re seeing like expensive valuations and record high allocations, this is not a tactical risk flag, but it tells us a lot about the forward-looking risk setup, and that we should be thinking about downside protection and how to spot (+what to do about) the downside when it comes.

Source: @BudaghyanArthur

7. US vs Global Stocks: moving on, one very interesting development is the apparent persistence in global outperforming US since the turning point in 2025, this represents a major trend change, as Willie notes: “The secular trend in favor of the US that emerged coming out of the Financial Crisis has been broken.”

Source:  Willie Delwiche

8. Brazilian Breakout: on the global front, this one caught my eye; after a period of correction and consolidation Brazil looks to be attempting a breakout.

Source:  @davevermilion

9. Philippine Deep Value: and another intriguing chart, Philippine stocks are trading on record low forward PE valuations.

Source:  @MikeFritzell

10. Time to 1 Million: this table shows how long it takes to get between each 100k increment step on the journey to $1million (assuming $10k invested each year with 7% interest) — thanks to compounding, most of the work and time is spent in the early stages: e.g. “the first 300K is 50% of the way to a millionaire”.

Source:  @Investmentkage via @DividendGrowth

Thanks for reading, I appreciate your support! Please like/share/comment.

Portfolio Strategy Notes — Unsafe Investing

Echoing on the allocations theme, it’s interesting to note how investor allocations to cash and bonds are right at the bottom end of the historical range. And even within equities, the market cap weighting of defensive stocks is also at record lows.

In other words, the typical investor has a much lower portfolio weighting than usual to safe/defensive assets.

This is exactly what you would expect to see in the later stages of a raging bull market in equities, and to be fair it has (so far) made more sense to hold more equities (and more growthy/risky equities).

But naturally this leaves investors unprepared and ill-positioned for the next stage of the cycle. A bubble-burst or garden variety bear market will do more damage than usual to portfolios and investor wealth levels given the much greater exposure to growth assets and much smaller weighting than usual to defensive assets.

So again, I think it will pay to have a good ponder on process and plans around this.

—

Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

In case you missed it, also see last week’s edition:

The Weekly ChartStorm

Hand picked charts and insights to help you Save Time, uncover Opportunities, and stay on top of the Stockmarket Outlook

By Callum Thomas

.

I sent a survey around yesterday asking what people think will be the biggest surprise for investors in H2 —and so far the top-voted candidate is “AI Bubble Burst”.

Looking at some of the recent price action (e.g. the KOSPI is down -20% off the peak, the US SOX putting in a major topping pattern, Japan’s Softbank down -33%), I think they might be onto something.

Which brings us to this week’s chart.

It’s an update of the US Semiconductors market cap weight chart, which has pulled back from record highs.

When I last featured this chart I mused: “semiconductors are in the bubble phase of the bull market (which is dangerous for both bulls and bears alike!)”

That remains true, and the danger is that we are in the early stages of a bubble burst (they start with initial weakness; slowly at first, and then all of a sudden).

But at the same time, in the past 2 years we have seen 2 periods of pullbacks which basically turned out to be “bull flags” (is this third time’s a charm?).

I would say it’s a timely juncture to review risk management plans and investment process, because at some point the old pattern of buy the dip will be faced with ever deeper dips…

Bottom line: AI bubble bursting risk is elevated; monitoring the situation.

p.s. yes —I will be digging deeper and updating on this chart/issue in future editions of The Weekly ChartStorm, so stay tuned!

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Global Bubbles — KOSPI

Korean equities are one key example of the global proliferation of AI bubblets.

Valuations have surged to record highs (as shown below), and meanwhile inflation risk is in alert mode in South Korea (general inflation was already trending up, and now PPI inflation + property price growth are surging); a pivot to rate hikes by the BOK (16th July) likely only piles on to the initial weakness we’ve seen in the KOSPI (alongside any doubts or idiosyncratic issues owing to AI).

A steeper correction in Korean stocks would likely rattle all of global equities, and logically spillover to emerging markets and US tech stocks. So it is one of the key risks I’m monitoring over at Topdown Charts.

Thanks for reading!

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Lastly, be sure to reach out at any time if I can help with anything. I promise to leave no questions unanswered and no problems unsolved.

—

Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

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Learnings and conclusions from this week’s charts:

• The equal-weighted S&P500 continues to make new highs.

• The cap-weighted S&P500 remains stuck (thanks to “lag-7”).

• The S&P500 Value index also chalked up new highs last week.

• Micro caps and financials are putting in promising price action.

• The USA, Korea, and China have one bubbly thing in common.

Overall, the bull-market-broadening and bullish rotation theme continues to play through, with the old leaders lagging, and everything else starting pick up. This is a constructive development, but there are a few things to keep an eye on…

ICYMI: 10 Charts to Watch in 2026 [Half-Time Update]

1. Bull Market Broadening: the bullish broadening theme continues to play out. Below you can see the SPXEW (equal-weighted S&P500) making a strong push higher, while the cap-weighted S&P500 is still stuck in consolidation mode. Meanwhile 200-day moving average breadth continues to trend higher.

Source:  MarketCharts.com

2. Lag-7: meanwhile the Mag-7 continue to lag behind vs the S&P493.

Source:  MarketCharts.com

3. Equal vs Cap Weight: the equal vs cap weighted S&P500 relative performance line sure is looking like it’s attempting to put a bottom in. This is a positive sign for the bullish rotation theme.

(however: coming from such a one-sided market, the risk is you get a situation like 2000 where equal-weight outperforms by falling less when the previous leaders come unstuck; i.e. a bearish rotation)

Source: 

4. Value vs Growth: there are also (albeit less convincing) signs that the value vs growth relative performance line is also attempting to turn.

Source: Topdown Charts

5. Value ATH: and on that note, the S&P500 Value index just quietly made a new all-time high last week (whereas the S&P500 Growth index peaked a month ago).

Read more

In terms of upsides and bullish-rotations, one area making big moves is small caps.

After retesting its big breakout earlier this year small caps have had a strong run.

And as previously outlined, small caps are trading on cheap valuations vs history (with good relative value vs bonds and vs large caps too).

Thanks in part to passive index investing and the primacy of big tech, small caps have become a neglected part of the market e.g. ETF market share (implied allocations) and rolling net-fund-flows for small caps are ticking up off record lows.

That is a classic contrarian bullish signal.

On that basis, along with cheap valuations and bullish technicals, small caps likely have plenty of room to run from here (and offer a bright spot amongst the bearish banter).

Bottom line: small caps have room to run in their new bull market.

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Lastly, be sure to reach out at any time if I can help with anything. I promise to leave no questions unanswered and no problems unsolved.

—

Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
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In the original note I shared what I thought would be the 10 most important charts to watch for global multi-asset investors this year. In this article I have updated the charts + provided fresh comments.

Read more

Learnings and conclusions from this week’s charts:

• Mag-7 has become Lag-7 (almost -20% performance gap).

• Across a number of indicators valuations look expensive.

• Strong earnings expectations are supporting high valuations.

• Tech stocks have become the dominant sector on many metrics.

• After a long period of trending, a period of ranging is “overdue”.

Overall, the bullish rotation theme remains in play as Mag-7 loses and the S&P493 wins. But in this edition we explore the bearish interpretation where the Lag-7 might actually be a harbinger (even if it manages a short-term rebound rally).

1. Mag-7 vs the Rest: the divergence widens —Mag-7 is increasingly being rebranded as the Lag-7 as Mag-7 dropped -14% from the 14th May peak (vs ex-Mag-7 up +5% over the same period). But note that tick-up from oversold levels on Friday.

Source:  MarketCharts.com

2. Lag-7: also of interest is how significantly the Mag-7 have fallen behind vs the Nasdaq-100. I think this speaks to; a. the bullish rotation theme (that the “S&P493” has managed to push higher); b. the oversold conditions in Mag-7 (the potential for a rebound rally); and c. whispers of peak-risk (after-all if the former leaders of the big tech-led bull market are coming undone, that’s a pretty significant warning sign).

(p.s. all 3 might be right, but just a matter of sequencing…)

Source:  @dailychartbook

3. Inconvenient Charts: I previously talked about how the bullish interpretation is rotation (investors rotate out of former leaders into former laggards), and that is actually what we are observing out there at the moment.

But let’s explore the bear case…

Read more

This week we’re looking at a clear and present warning indicator for the US Stockmarket.

This indicator warned us of 3 major market peaks over the past 3 decades.

So it’s something we definitely need to factor in.

I will say two caveats though, first; you get the best signal on these types of indicators when it goes to an extreme AND then turns (i.e. see the circles below).

Second, it is just one data point and just one part of the larger puzzle.

But then again, we do have more and more puzzle pieces telling us similar things (be careful). For example, as covered in the Chart Of The Week (and featured + discussed regularly in the Weekly ChartStorm), consider the following points:

• Valuations are expensive and at cycle highs.

• Wall Street analyst expectations are euphoric.

• Investor allocations to stocks are at record highs.

Maybe we don’t peak immediately, maybe the market doesn’t crash, and maybe it just even goes sideways instead of down, and maybe it is all just different this time.

But maybe, just maybe, you should have a think about how to navigate your portfolio through a downturn. What if stocks stop going up? What if dips keep dipping? What if history repeats?

Do you have a plan to protect capital, do you have buffers in place, will you have cash to deploy on the other side of the downturn, do you have the fortitude to ride out a large or prolonged downturn in stocks, have you thought of ways to benefit in a downturn?

Sorry to give you extra homework, but definitely a few things to think about here!

Bottom line: the margin debt expansion indicator is at bear market warning levels.

p.s. yes —I will update this chart in future editions of The Weekly ChartStorm, so stay tuned!!

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Further Thoughts…

I wanted to add a couple of extra charts because I can just hear the questions already — first one is the same chart above but extended all the way back as far as the data goes. This one answers the queries around more data points, and basically it confirms the same message as the first chart. Yes it is a valid and reliable warning indicator.

The next chart looks at the year over year change in margin debt MINUS the year over year change in the S&P500, so basically it strips out the effect of market movements. Because I am sure some will quip that “yeah but margin debt just goes up when stocks go up, and stocks go up into market peaks”.

But again, the signal still looks good, and the surge in margin debt this year remains significant even adjusting for market movements. So again, the warning stands.

And as another angle, this chart shows the net margin debt balances (margin debt minus free credit) as a percentage of market cap, and this indicator just broke through the top end of the range. So basically another way of saying yes margin debt has gone up a lot and investors are more levered-up than usual. (again, yes the warning is still in place)

So while this is all just one data series, and only one of the many ways investors are getting levered exposure to stocks these days (with levered ETFs, futures, options, and various other “financial innovations”), and only one piece of the larger puzzle, it is a potent and clear warning signal.

It’s enough to make you want to dig further, and think a bit more about capital protection strategies and asset allocation so that you’re ready if/when it does turn.

Looking for Deeper Actionable Insights? Check out my Institutional Service.

Topdown Charts Professional

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Lastly, be sure to reach out at any time if I can help with anything. I promise to leave no questions unanswered and no problems unsolved.

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Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

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Learnings and conclusions from this week’s charts:

• Mag-7 has been underperforming vs the “S&P493”.

• Valuations are high because profitability is high (profitability is cyclical).

• Investor cash allocations are very low (which is a warning sign for stocks).

• Margin debt acceleration has reached warning levels.

• Stockmarket seasonality turns negative from July-Oct.

Overall, we are witnessing continued bull-market-broadening and bullish rotation as the S&P500 ex-Mag-7 makes new highs and the equal vs cap weight relative performance line ticks up. But there are a few warning signs to keep in mind and the bear case would be that Mag-7 underperformance turns into something sinister…

1. Mag-7 vs the Rest: the prevailing narrative in markets over the past few years is that it has been all about Mag-7, so it’s probably a surprise to see that Mag-7 have been floundering through June while the S&P500 ex-Mag-7 (aka the S&P493*) is out to new all-time highs.

Source:  MarketCharts.com (*inspired by The Morning Print)

2. MAGS vs XMAG: looking at the relative performance of Mag-7 vs the rest it’s been a similar scale collapse in relative performance for Mag-7 as was seen in Q1. That Q1 decline was basically bearish rotation where the previous market leaders led the market lower. What we are seeing right now is what I would call bullish rotation as the previous leaders pass the torch to the previous laggards.

And that’s probably the most bullish pathway for the US Stockmarket right now; bullmarket-broadening and bullish rotation. Maybe the headline cap-weighted index doesn’t rise as fast, but instead you see a bunch of rotation under the surface.

Source:  @MikeZaccardi

3. Equal-Weight vs Cap-Weight: another angle on this is the relative performance line for the equal vs cap weighted S&P500.

A few things to note on this: firstly, it’s actually normal for the equal-weighted index to outperform the cap-weighted index over the longer term; second, wild deviations from trend in this line can indicate/confirm structural weaknesses or vulnerabilities in the market, third, this line looks to be attempting to bottom (double bottom?) — which again would bring the rotation theme to mind.

It also whispers that we need to be wary of bearish rotation where the previous leaders run out of steam after an extended bull market, and due to their larger weight take the index down.

Source: 

4. Cycles in Valuations (and Profitability): one reason to be alert on that front is if you look at the extremes in the chart above, they map to some of the periods of higher than usual valuations in the stockmarket (seen below).

Drilling into this chart, it is very interesting because it confirms the bullish narrative that valuations are high for a reason (high profitability).

But the bearish counterpoint would be that return on equity is cyclical, so if profitability gets damaged (e.g. AI capex bust, economic downturn, some other shock/crisis), then the reason for high valuations will fade away and valuations will mean revert. That’s the bear case. And we can monitor specifically for signs of that (none yet).

Source:  @ISABELNET_SA

5. Cashed Out: another echo on this theme is investor cash allocations bouncing along the bottom (which has often been a topping sign in the past).

Source: @i3_invest via @TheChartReport

6. Margin Debt Warnings (1/2): another bearish warning flag is the surge in this margin debt vs M2 indicator (i.e. margin debt normalized vs the money supply).

Source:  @VISUALDATAT

7. Margin Debt Warning (2/2): and here’s my own margin debt risk indicator updated to the just released May data. The rate of expansion in margin debt is the 4th fastest in recent history, and is consistent with a heightened downside risk alert. I would note that the pervious 3 major topping signals on this indicator did take a few months to work, but the message is pretty clear here.

Source: 

8. Seasonally Slippery: zooming back in to the more immediate term, seasonality sours from late-July into Oct/Nov (albeit stocks have a habit of rallying from mid-June to late-July; so maybe there is a bit of a seasonal bull trap being set here!).

9. Seasonal-Cycle Surge? on the other hand, when you look at the election-cycle seasonal pattern, yes you get the same conclusion that it could be a bit of rough and tumble for markets heading into the mid-terms… but afterwards the historical tendency has been for stocks to put on a solid rally.

Source:  SnippetFinance

10. Industrial Revolution: another silver-lining and in line with the bullish rotation theme, industrial stocks have broken out (industrials benefit from stronger real activity, hard capex, and improving global growth — all things that are currently underway in earnest).

Source: @DrJStrategy

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Portfolio Strategy Notes — Treasuries are NOT Trash

Similar to what we saw with investor allocations to cash probing the lows, investors in aggregate are running record low allocations to treasuries.

You can see why in the chart below, with stocks having had a dream run while bonds have had a disastrous run. But you can also see something else in this chart. Both series look cyclical —one is in the middle of an upcycle, the other in the middle of a downcycle, and the next steps seem logical.

The key takeaway is that investors are heavily underexposed to bonds in general but especially treasuries. Bonds had a bad run since 2020, and this has lead some people to incorrectly assert that bonds are no longer a good diversifier —but what they miss is that 2022 for instance was an inflation shock, bonds never perform well in an inflation shock (and investors need to use commodities for defense in that situation).

Rather bonds do well during deflationary downturns, situations where economic activity declines, inflation shrinks (or even tips into deflation), and the Fed takes rates lower and expands the balance sheet. In those environments investors sell risk assets and buy defensives like bonds… often when it is too late. I would suggest looking at gradually building exposure to bonds at the cost of stocks (e.g. putting new money into a bond allocation, and thinking about rebalancing profits from risk assets).

And one last thing, AI might well be a key swing factor here. Eventually the AI capex boom will turn to bust (and that will dampen economic growth), but also as AI adoption increases the deflationary effects will be felt. If you get those two things happening at the same time it could be a recipe for strong returns for bonds.

—

Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

In case you missed it, also see last week’s edition:

The Weekly ChartStorm

Hand picked charts and insights to help you Save Time, uncover Opportunities, and stay on top of the Stockmarket Outlook

By Callum Thomas

.

From a valuation perspective this market is divided into the Bigs (top 100) and the Big-Nots (everyone else).

If you’re big you attract all the flows, have a much lower cost of capital (aka very high valuations), you suck up a lot of small companies through M&A, and to be fair if you got big in the first place you probably have pretty decent earnings and growth.

If you’re small you’re off the radar, under-covered, under-valued, under-performing and probably underestimated.

And even if you’re large —but not the largest, you still trade at a discount to the largest companies.

As alluded, this is partly selection effects (successful companies get big), but also reinforced by the relentless rise of passive/index investing.

But where things are sitting now is what you would call extreme. And whenever you see an extreme in markets you want to pay attention because that’s where some of the biggest risks and opportunities can be found.

This chart highlights the risks on the one hand with mega caps as a group trading at the most expensive levels since the dot com bubble. Even if it is different this time (and it definitely is in many respects), this presents a very high bar and shows investor confidence is extremely high (investors expect the top 100 to continue to grow at an aggressive clip).

It also shows the opportunities on the other hand, with SMID caps trading at cheap valuations vs recent history and cheap relative valuations vs large and mega caps.

The interesting thing is we are starting to see early signs of a shift in relative performance — after lagging long behind, small caps are starting to play catch-up with the Russell 2000 making new all-time highs this week, while MAG-7 peaked in mid-May and are just treading water at the moment.

As discussed in the latest Weekly S&P500 ChartStorm, I reckon this could be the start of a bull market broadening and bullish rotation…

Bottom line: big stocks are trading on big valuations while smalls are trading at a big discount.

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Bonus Chart: aside from valuations, it’s also interesting to track market cap weightings. The below chart shows the market cap weight of the top 100, the S&P500 minus the top 100, the 400 (mid caps), and 600 (small) — as a percentage of the S&P1500 (which is the 500 + 400 + 600 indexes).

Key thing to note is that the biggest stocks are much bigger than usual …but ONLY the very biggest (top 100). The S&P 500 excluding the top 100 is actually at a record low market cap weighting. Meanwhile small and mid caps are likewise much smaller than usual. Again, let’s keep an eye on extremes like this as things unfold, because as interesting as life in markets has been these past few years, I think things can get interestinger still…

n.b. the blue lines are on the left axis, and the red lines on the right axis (so the top 100 are about 68% of market cap, and the small 600 about 2.5%).

Thanks for reading!

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Be sure to reach out at any time if I can help with anything. I promise to leave no questions unanswered and no problems unsolved.

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Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

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The Weekly ChartStorm

Hand picked charts and insights to help you Save Time, uncover Opportunities, and stay on top of the Stockmarket Outlook

By Callum Thomas

Learnings and conclusions from this week’s charts:

• The sell-off looks to have run its course.

• Leveraged long ETF traders bought the dip.

• The equal-weighted S&P500 already made new highs.

• Small caps are also gaining in absolute and relative terms.

• The SpaceX IPO is a key milestone for the Space Sector.

Overall, the short-sharp-sell-off looks to have largely run its course, and dip-buyers were there for it. Adding to the optimistic case, we’re seeing signs of bull market broadening and bullish rotation (small caps and the equal-weighted index).

1. Space for a Sell-off: some might argue this was a “SpaceX sell-off” i.e. stocks dipping as investors trimmed positions to raise funds to participate in the the IPO and/or establish positions on the day [particularly for fund managers who have or will have SPCX in their benchmark].

Either way, it looks like a healthy sell-off at this point: the index barely approaching key supports around the 50-day average and the 7200-level, and market breadth trending up (culminating in a bullish divergence — a lower low on the index vs a higher low on the 50dma breadth indicator).

Source:  MarketCharts.com

2. Leveraged-Long the Dip: and because we’re in a raging bull market with an almost frantic sense of greed, we’ve seen heavy trading in leveraged-long US equity ETFs. This seems to be a smart money indicator (albeit they were a bit early in late-2021), so maybe the space-sell-off has run its course.

Source: 

3. Meanwhile RSP new All-Time High: further to the bullish breadth divergence, another broadening-bull sign is RSP (equal-weighted S&P500) making fresh all-time highs on Friday.

Source:  @nanotitan28

4. Small Caps Too: similarly, US small caps also chalked-up a new all-time high on Friday (which followed a bit of consolidation in recent weeks).

Source:  @AmandaZmolek

5. Rotation Stations: and small caps have clearly turned the corner relative to Mag-7, this is a very promising sign for broadening of the bull market and potential bullish rotation (which is basically where you get previously weak and overlooked parts of the market playing catch-up [and the index bulls on] rather than previously overheated and overhyped parts of the market catching-down [and the index breaks down]).

Source:  @scottcharts

6. The Bigs and the Big-Nots: one reason to think about rotation is the risk and opportunity that this chart represents. On the risk side the largest stocks are very expensive (therefore at risk of disappointing vs high expectations), while on the opportunity side the smaller stocks are basically cheap (with upside risk vs subdued expectations). At the moment the valuations and technicals align when it comes to rotation.

Source: 

7. Big T: speaking of bigs, here’s the biggest of the bigs —there are now 12 big-T (trillion dollar market cap) stocks in the US (up from 11 as of Friday).

Source:  @charliebilello

8. SPCX: speaking of Friday, SpaceX managed a +19.22% pop on its debut.

Source:  @SpaceInvestor_

9. The Rise of the Space Sector: by my calculations the US space sector went from just over 0.2% of total US market cap on Thursday to about 3% on Friday (and now is larger than the legacy aerospace and defense sector). It’s probably going to be a bumpy ride, but this looks like the birthing of a new and important sector in the Stockmarket.

Source: 

10. Space Stock Crash: following the equal-weighted space stock index* peak on the 28th of May, the 10 stocks in this index are now down an average -32% (after dropping an average -12% on Friday). There’s probably a bit of buy-the-rumor-sell-the-fact going on with the SpaceX IPO bolstering the sector, but probably also a bit of people selling SpaceX proxies and buying SpaceX itself.

If I had to guess though the SpaceX listing will probably be longer-term bullish for Space Stocks as a whole (by raising more attention/awareness to the sector, and attracting more active and passive fund flows over time).

Source: [originally in: Chart Of The Week]

*RKLB, LUNR, RDW, VOYG, ASTS, PL, FLY, SPIR, BKSY, SATS

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Portfolio Strategy Notes — Sector Skews

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This week’s chart pretty much speaks for itself (+has just made a new all-time high).

To clarify, what we are looking at here is the estimated annualized compound growth rate expected by sell-side analysts over a three to five-year horizon aggregated for the S&P500.

i.e. consensus earnings growth expectations.

Or as I like to call it: Wall Street analyst sentiment.

And like all good sentiment indicators there are elements of truth and elements of emotion all mixed up in it.

In boom times euphoria takes hold and analysts raise their estimates as stock prices punch higher, new paradigm narratives take hold, and ultimately expectations end up overestimating even the best fundamentals.

In doom times pessimism reigns, and analysts slash their estimates as the economy stalls, stock prices plunge, and gloomy estimates dramatically undershoot even the worst downturns in earnings.

As things stand right now it is clearly in euphoria mode.

Some will argue that there is good reason for this, and as I noted they will be right that some of it is well-reasoned and true. But there is clearly a powerful sentiment and story dynamic that has swept up even the most sober analysts. And I would say that this is good example on both fronts.

Bottom line: consensus earnings growth estimates have reached an all-time high.

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Lastly, be sure to reach out at any time if I can help with anything. I promise to leave no questions unanswered and no problems unsolved.

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Callum Thomas

Founder & Editor of The Weekly ChartStorm
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NOTE: I’m traveling this week (family holiday) so I’ve prepared this one in advance —this session is a follow-on from a previous post on the 2021/22 top (which looked at the charts that helped flag the peak).

The purpose of this week’s post is to look at the charts and clues that helped flag the 2022 market trough. The point of this exercise is to reflect on what indicators proved useful to help with process development, education, and ultimately preparation for the next downturn.

Methodology note: I’ve shown the charts as they appeared at the time [i.e. THE CHARTS ARE NOT UPDATED] (because it is obvious in hindsight, but never entirely obvious at the time and in this way you can see what it looked like at the time).

I’ve also shown the charts I selected in chronological order — because again it’s obvious now, but back then it was a process of: “here’s some clues a bottom might be near”, and then the next phase is “it looks like the bottom is in (but we’re not 100%, risks remain)”, and then you get increasing technical/macro-fundamental confirmation before it finally becomes “obvious”.

1. IPO Activity Collapsed: one clue was the collapse in equity capital markets activity (IPO and SPAC issuance crashed below March 2020 levels by mid-2022. I have found IPO activity to be a reliable indicator of the stage of the market cycle (i.e. as a symptom or output of where valuations/sentiment/liquidity are at), but also there is a simple supply and demand aspect (e.g. if IPO activity surges, supply of stocks goes up, if IPO activity collapses, supply slows). This chart helped flag the peak in 2021/22 and the subsequent market trough in 2022.

“after peaking in early 2021, the previously booming IPO (and SPAC) market has turned to bust. But that may not necessarily be a bad thing… Basically when this indicator plunges towards 0%, that has historically been a sign that a bottom is close.”

Source: Weekly S&P500 ChartStorm - 10 September 2022 [ Topdown Charts ]

2. Valuations Reset: valuation indicators are also an important means of gauging the stage of the market cycle because ultimately they are a measure of investor confidence. If investors are very optimistic on future earnings growth they will pay more money and value those expected earnings flows more highly. If investors are pessimistic and in panic mode, they will lack the certainty or belief required to pay a premium for future earnings, and will be more focused on preserving capital.

In practice the level of valuation indicators is important, but what is also important is the change e.g. the forward PE ratios in the chart below saw a major reset; thereby adding evidence to the possibility of a market trough.

“US equities are in line with recent history average (but not cheap/below average). Whereas the rest of the world does look cheap vs its own history (and vs USA).”

Source: Weekly S&P500 ChartStorm - 10 September 2022 [ @QCompounding ]

3. Speculators Crowded to the Short Side: another important piece of the puzzle was speculative futures positioning plunging into net-short territory. This is an important indicator from a contrarian standpoint as speculators tend to be all-in near the peak, and crowded to the short side near the bottom.

But crowded short positioning also represents future potential buying, especially if the market begins to rebound (triggering panic buying by speculative shorts to square their position).

“Speculative futures positioning is heavily net-short.”

Source: Weekly S&P500 ChartStorm - 25 September 2022 [ @Barchart ]

4. Margin Debt Dropped: similarly, we should pay attention to big shifts in margin debt balances. Large increases in margin debt balances indicate greed, while large drops indicate panic and ultimately lead to a selling climax as margin calls get triggered and capitulation sets in. Once all the sellers have sold, selling pressure exhausts, and the bottoming process can run its course.

“BofA analysis suggests the shift in margin debt rate of change is a contrarian bullish signal…”

Source: Weekly S&P500 ChartStorm - 9 October 2022 [ @ISABELNET_SA ]

5. Seasonality Worked: seasonality worked well in 2022, not specifically because it foretold an imminent rally based solely on historical averages, but rather because it was a prompt to think about the unthinkable. At that stage people were fixated on the bear case, so seasonality helped by adding to the growing list of clues and by drawing attention to a possibility most were not considering at the time.

“a prompt to consider something we might not have previously considered… a Q4 rally. To consider that: sentiment is extremely bearish, so by definition there are a lot of minds that could be changed and in so doing drive upside”

Source: Weekly S&P500 ChartStorm - 16 October 2022 [ Topdown Charts ]

6. Fund Manager Cash Allocations Surged: similar to the futures positioning chart, this one tells us two pieces of information; it tells us that the crowd is bearish (which is often a contrarian signal; albeit not always [sometimes the crowd is right]), but it also tells us that fund managers have dry powder and could become a source of buying power if they change their minds (e.g. if the market turns up, macro improves, etc).

“Fund manager (surveyed) cash levels are apparently at the highest levels since 2001.”

Source: Weekly S&P500 ChartStorm - 23 October 2022 [ @RyanDetrick ]

7. A Bullish Divergence Occurred: technical analysis signals can be an excellent way to build conviction and finesse the matter of timing (as well as being a prompt to consider a different possibility). A bullish divergence is defined as a lower low on the index vs a higher low on the accompanying relevant indicator [in this case the 14-day RSI oscillator], and in this case it added evidence and a prompt to consider the possibility of a new bull market.

“an intriguing “what-if” setup on the weekly chart (bullish RSI divergence: when the index makes a lower low and the indicator makes a higher low — can indicate a shift in market dynamics).”

Source: Weekly S&P500 ChartStorm - 23 October 2022 [ @mattcerminaro ]

8. We went Full Circle on 60/40 Expected Returns: my expected return data (which is normally used for developing long-term strategic allocations) gave some interesting tactical insights in 2022. Forward looking expected returns for the 60/40 portfolio went from deeply negative in 2021, to matching levels it got to in 2020. These expected returns are in large part driven by yields and valuations, but it added another objective datapoint that hinted at the prospect of upside.

“some might argue that several rounds of shock therapy have brought the 60/40 portfolio investing approach back from the dead…”

Source: Weekly S&P500 ChartStorm - 23 October 2022 [ Topdown Charts ]

9. Retail Cash Allocations Spiked: this was the same kind of signal as the fund manager cash allocation chart; retail investors raising cash was a sign of pessimism and panic, but also a source of future potential buying power (and a sign of selling exhaustion).

“reported investor portfolio allocations to cash rose to one of the highest readings of the past decade during October. It reflects a change in investor moods, a change in alternatives, and a change in the risk vs return outlook.”

Source: Weekly S&P500 ChartStorm - 6 November 2022 [ Topdown Charts ]

10. Sentiment Crashed and then Turned Up: sentiment signals (direct gauges from surveys and indirect gauges from market pricing, activity) again are useful in telling us the mood of the market, the stage of the market cycle, and contrarian information for market timing. In this case we got the classic signal of sentiment plunging —and then turning up.

“the “Euphoriameter” ticked up slightly in October off of the lowest point since 08/09. Contrarian bull signal?”

Source: Weekly S&P500 ChartStorm - 13 November 2022 [ @topdowncharts ]

11. Back Above the 200-day Moving Average: this one came later in the process —which is basically a feature of longer-term moving average crossovers (i.e. they trigger later, but tend to have less chop/noise/false-signals). But the interesting added condition of spending a material period (6 months) below the 200-day average before crossing back above helped reduce the number of signals and historically had a very good record of flagging the start of new cyclical bull markets.

“Recapturing the 200-day moving average (after a material (6-month) period below) is usually a good thing... (reminds me of another market aphorism — "nothing good happens below the 200dma").”

Source: Weekly S&P500 ChartStorm - 4 December 2022 [ @RyanDetrick ]

12. Peak Inflation: lastly, because a big driver of the drop in stocks in 2022 was the surge in inflation, the subsequent peak in inflation was a key development. This chart helped plot a potential pathway from peak inflation.

“Seems like peak inflation is good for equities — unless it is followed by recession...”

Source: Weekly S&P500 ChartStorm - 4 December 2022 [ @patrick_saner ]

To wrap-up, at the time it was a process of gathering evidence and clues that a trough was possible, then increasingly likely, and then subsequently confirmed. It’s obvious now with hindsight, but it is never easy when you are living through it, that’s why this sort of exercise is useful as a sort of post-mortem — to see what worked, what we should have looked at, and how we should have thought and assessed things to help get on the right side of the market.

As a minimum this should have given you some ideas for indicators to track in the future, further understanding of market analysis principles, and a worked example for navigating market cycles.

And in the end, that’s why I do the Weekly ChartStorm — partly because I just like doing this (I find it interesting; I enjoy the craft), but also because I know I’m helping people with my work.

On that note, if you haven’t subscribed yet, please feel welcome:

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also, p.s. I am making this available as a free article, so you can share it or forward on to friends/colleagues if you’d like.

Thanks for reading, I appreciate your support!

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Best wishes,
Callum Thomas

Founder & Editor of The Weekly ChartStorm
and Head of Research at Topdown Charts

Twitter/X: https://twitter.com/Callum_Thomas
LinkedIn: https://www.linkedin.com/in/callum-thomas-4990063/

See also: Weekly ChartStorm - The 2022 Top

The Weekly ChartStorm

Hand picked charts and insights to help you Save Time, uncover Opportunities, and stay on top of the Stockmarket Outlook

By Callum Thomas

Today’s chart is one for tomorrow’s history books.

It shows US households running the highest allocation to equities on record (and [as a result] the stockmarket trading at record high valuations).

This is the type of shift you see only once in a generation, and it means a fundamental change in market structure with significant implications for the economy, politics, and the forward looking risk vs return outlook.

But to be fair, with the S&P500 gaining more than 10x off the March 2009 lows — it’s an entirely understandable development!

And even though it got this way for very logical reasons (strong earnings growth, waves of tech disruption, low interest rates, passive flows), it’s important to acknowledge that this is not normal and we live in highly unusual times.

Investor confidence is near record highs, earnings optimism is at euphoric levels, defensives and diversifiers are in the dustbin, and social media chatter is saturated with an almost desperate sense of greed (with investors growing accustomed to 2x, 3x, 10x returns, and the bull market minting many geniuses).

This is the speculation generation.

p.s. this is neither good nor bad, it’s just a thing… and that’s the thing: as market analysts we ought to not got get bogged down in good or bad, bullish or bearish, optimism or pessimism —but rather what is the lay of the land? what does the data tell us? and what are the most pragmatic next steps we should take (or prepare to make…)

Bottom line: a generational shift in investor behavior has been observed.

Thanks for reading!

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Lastly, be sure to reach out at any time if I can help with anything. I promise to leave no questions unanswered and no problems unsolved.

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Callum Thomas

Founder & Editor of The Weekly ChartStorm
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Learnings and conclusions from this week’s charts:

• The S&P500 gained +5.15% in May (up +10.73% YTD).

• Investor expectations, allocations, valuations are near record highs.

• Buyback tailwinds have faded, and semis look heavily overbought.

• Median stock short interest has surged to decade+ highs.

• Small caps & Software show there’s overlooked opportunities out there.

Overall, there are more and more signs of market extremes as a generational run in stockmarket speculations sets in. And while the risks/vulnerabilities are arguably rising, the trend is still your friend for now…

1. Happy New Month! The S&P500 closed up +5.15% on the month (placing it up +10.73% YTD). This sees the index comfortably above its 10-month moving average, confirming Q1 as the third big bull market correction since the 2022 low. Meanwhile the trend is still your friend.

Source: 

2. The Age of Speculation: with the strong uptrend in stocks and repeated bull market corrections, you could forgive folk for believing that stocks only go up. And if you look at the surveys, the percentage of people expecting higher stock prices a year from now reached its second highest reading ever in May.

3. Generational Shift in Investing: this is also echoed in actual investor behavior, with the average investor holding a record high allocation to equities, and stockmarket valuations (basically a measure of investor confidence) close to all-time highs.

4. AI Earnings Euphoria: and Wall Street analysts are not immune from this rising euphoria either, with the Long-Term Average Earnings Growth estimate closing in on record highs thanks to the AI earnings boom (/bubble?).

Source: 

5. Unusual Times: as another angle on it, Goldman Sachs shows a composite of market indicators at stretched levels ——that don’t necessarily mean imminent crash, but levels that indicate that we are living in unusual times.

Source:  @MikeZaccardi

6. Buyback Backdown: the thing about the previous few charts is that while they indicate an increasingly vulnerable/risk-prone market, expensive valuations by themselves aren’t necessarily an issue, they need some kind of catalyst or trigger to make valuations matter.

One potential issue on that front is the way that buybacks have gone from a major tailwind for stocks to nearly irrelevant (+we have some big IPOs and issuance on the horizon). Having said that, while this is important, the more likely trigger for a market downturn would be a recession/shock/crisis or prolonged tightening of monetary conditions.

Source:  @neilksethi

7. Semis Fully Overbought: yet we also need to consider how extraordinary the price action has been — we haven’t seen this type of scrambling into semi conductors (or any sector really) for a long time. The religion of AI stock market euphoria has many believers and zealots, semis are the “sure thing” of the current market moment.

Source:  @Bluekurtic

8. Short Surge: this is a curious chart, it shows the median stock short interest at decade+ highs. I don’t know whether this is people betting against AI losers (e.g. software), using boring stocks to fund longs in sexier AI stocks (e.g. defensives), some sort of hedging/derivatives effects, or actual directional bets against AI euphoria. But it is interesting for sure, and if the stockmarket rally continues to broaden out (e.g. equal-weighted S&P500 has broken out now), we could see a bit of short-squeeze action providing an assist higher.

Source:  @KobeissiLetter

9. Small Caps Still Can?  Small cap stocks have been quietly achieving (albeit less spectacularly than their mega cap peers). But there may still be upside left as Frank Cappelleri muses: “IWM is now up 70% from its 2025 low and has pushed back into weekly overbought territory. That sounds like a lot, but it pales in comparison to the 2020-21 advance, which ultimately ran roughly +150%. Highlighted in green in 2020 is the point where IWM had also gained 70% and first reached weekly overbought — which turned out to be the middle of that entire run.”

Source:  Capp Notes

10. Software Stocks (…and Bitcoin): meanwhile Software stocks (remember the sector everyone thought was dead thanks to AI?) have gone from slow and steady recovery to sharp and surging, with IGV up +6.25% on Friday. Bitcoin on the other hand is looking a little less convincing. Again I think these two are worth keeping tabs on as a risk barometer by joining in the rally, but also as examples of opportunities that are just sitting there under the radar and out of the AI euphoria spotlight.

Source:  Chart of the Week - Bitcoin & Software

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Portfolio Strategy Notes — Emerging Markets

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For most investors the KOSPI is not the first index they check when they get to the desk — they probably don’t even think about Korea…

But you should.

In today’s note I wanted to highlight a topic from my latest Weekly Macro Themes report from . Basically, Korean equities have gone parabolic.

(and yes, it’s AI again!)

And if you thought the US market was getting top-heavy and concentrated you haven’t seen Korea.

The top stock, SK Hynix, is tracking near-30% of the MSCI South Korea index. Close in second is Samsung Electronics at about 25% of the index. Add in SK Square and a few other stocks related to those two and the AI/chips theme, and you have over half the index tied up with the AI boom (/bubble?).

So what?

Aside from the wild upswing in stocks seen in the chart below, speculators have also bid-up Korean apartment prices, and the geopolitics-driven commodity spike is pushing up PPI inflation, and hence the Bank of Korea is set to get into rate hikes as inflation pressures rise.

The tail risk here is that the new BOK governor (his first meeting is tomorrow) decides to cast aside tradition and just get on with rate hikes (rather than first projecting next steps) when they meet on the 28th of May [Korea Time].

Polymarket has the odds of a rate hike at about 1% — so this is not something people are expecting, and in fairness is a very low likelihood.

But a hawkish surprise could rattle Korean stocks, and being that it’s basically a microcosm of the larger AI trade, it could easily ripple across to US tech stocks.

So it’s a bit of an under-the-radar risk and something to keep an eye on.

Bottom line: Korean stocks have gone vertical thanks to massive index concentration and the AI boom boosting Korean chip manufacturers (+a natural proclivity for speculation in South Korea).

Want more analysis like this?

The above topic was covered in greater detail in my latest weekly report over at Topdown Charts Professional — and p.s. in case you missed it we are currently running a Founding Members Launch special.

Find out why Topdown Charts is used by some of the world’s largest investors to help them spot opportunities, avoid risks, and stay informed on key macro trends [Click through for More Info].

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Learnings and conclusions from this week’s charts:

• The equal-weighted S&P500 has broken out to new highs.

• Space stocks are soaring following the SpaceX IPO filing.

• SpaceX (SPCX) could end up with an index weight of 3%*.

• The mega-IPO wave is a sign of the times (late-cycle signal).

• The swearing-in of a new Fed Chair might be a bearish omen.

Overall, the bull market got a bit more bully this week with the breakout of the equal-weighted index. But the arrival of a new Fed Chair and IPO boom points to a more volatile horizon…

1. Equal Opportunities: I previously noted how the equal-weighted S&P500 had been lagging behind vs the cap-weighted and was stuck in the range, and yet to make a new high. That all changed last week.

The equal-weighted S&P500 (and equal-weighted Nasdaq for that matter) has broken out of the range and onto new highs. Bullish development.

Source:  @SerSigma

2. The SpaceX Factor: probably the biggest development last week was the SpaceX IPO filing — set to be the largest IPO in history (~US$2 trillion). It will trade on the Nasdaq under the ticker SPCX (targeting mid-June).

The news helped my equal-weighted index of space sector stocks surge to further new highs, as the space boom kicks into full swing.

Source:  Chart of the Week - Space Stocks

3. Space Allocations: as a side note on space stocks, one interesting point is that space-focused ETFs (such as UFO, ARKX, NASA, ROKT, MARS) currently have a market share of about 0.06% — that compares to 0.32% for Aerospace & Defense ETFs (and a market cap weight for US Aerospace & Defense of just over 2%).

Arguably investors are underallocated to the commercial space theme.

(…or at least until SpaceX lists and gets included into index funds)

4. SPCX Index Fast-Track? with the S&P index committee currently consulting on how to treat Mega Cap (i.e. top 100 largest companies by market cap) IPOs, we could see SpaceX soon getting a substantial weight in passive and active fund benchmarks (e.g. on current info it could be as much as a 3% weight if it were included in the S&P500).

Based on Bloomberg Intelligence analysis, this would mean active+passive funds might need to buy almost half of the public float of SpaceX.

Source:  @rduboff via @EricBalchunas

5. Mega IPO = Mega Volatility: the upside case for SpaceX with index fund buying in the short-term and potential Mars colonization in the long-term and space-based internet and AI data centers in the more immediate term is clearly quite compelling.

But it’s about this point we should take a look at some previous big compounders’ post-IPO path. Volatility is the rule (which may be a risk or an opportunity depending how you look at it!).

Source:  Off The Charts

6. Billions or Bust: stepping back and looking at the bigger picture, we basically have a wave of mega-cap IPOs expected to come to market. Aside from SpaceX there’s also talk of AI hot shots OpenAI, Anthropic, Databricks (combined set to be at least as big if not bigger than the SpaceX IPO). This all adds up to a bumper year for equity capital markets, and is likely to exceed the crazy stimulus-SPAC boom of 2021.

Source:  Goldman Sachs via @BlakeMillardCFA

7. Boon or Bust? and yes, this is a late-cycle signal. In equity capital markets you have to make hay when the sun shines, raise capital when speculative appetite is ripe, funds are flowing, and valuations are high. Those are conditions you see in the later phases of the market cycle. But even then, if this chart proves to be an accurate guide, it means we are close-to, but still not-yet-at the peak.

Source: @Geo_papic

8. IPOs & Market Cycles: zooming further out, and just looking at the number of IPOs, again we can see that things have heated up on the IPO front (and p.s. ever since 2000 IPOs kind of fell out of relative-popularity with the rise of venture capital and private equity, so the 2025-26 numbers are good by post-2000’s standards).

Source: 

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