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%).

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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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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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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.

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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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Thanks for reading!

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:

• 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: 

Read more

A key theme from the latest Weekly S&P500 ChartStorm was that the Stockmarket is currently in the process of “letting-off steam” following the sharp rebound-rally.

Valuations were one key example of “steam” building up…

Bigger picture, we are in a cyclically overheated market, the various valuation indicators say it’s expensive, and that does create a risk of rapid resets and eventual valuation mean reversion.

This is the risky end of the cycle.

And before you tell me about AI buildout and all the rest of the good reasons why stocks are going up, I understand that, and so does everyone else, and let me assure you — there is always a reason.

Bulls, Booms, and Bubbles start with good reason, and end when things get unreasonable.

So, on the topic of today’s chart, are valuations unreasonable yet?

Objectively speaking, the composite valuation indicator below is in the risky/expensive zone. It’s from around these levels that the market crashed in 1987, the dot com bubble peaked, and the 2021 stimulus frenzy fizzled out.

Those are 3 very different markets, and so yes it is different this time.

But the risk of downside echoes on.

From a pragmatic standpoint though, in the end, aside from freak crashes or crises, the thing that causes markets to go down in a sustained fashion (aka bear markets) is economic recession causing earnings declines and stressing weak spots (ultimately earnings are the key driver of stock prices in the bigger scheme of things).

In other words, markets downturns also start with good reason (a catalyst).

For now there are no signs of recession, there’s even some bright spots. But I’m keeping close tabs on the earnings pulse, macro leading indicators, and higher frequency cycle trackers, so I will be sure to update as/when/if the facts change…

Bottom line: valuation indicators are sounding a background warning tone.

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

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Conceptual Notes — Market Cycle

On of the core philosophies underpinning my research process is that macro and markets go in cycles, and that these cycles more or less rhyme across time, assets/markets, and geographies.

The conceptual model of the market cycle is displayed below — and this version is probably a bit more nuanced than what you might be used to seeing, because it recognizes the psychological turmoil, corporate/governance/peer pressures, and pitfalls that each stage of the cycle brings.

Within this framework we are close to that red dot on the valuation front.

But as they say, the trend is your friend until it bends…

Need help navigating these cycles?

Head over to Topdown Charts Professional for actionable insights, asset allocation research, and portfolio strategies to practically help navigate these cycles.

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Topdown Charts provides global multi-asset investors with investment ideas, risk management alerts, and meaningful macro insights to help investors make better decisions, with confidence — so they can achieve their goals and get ahead.

One more thing…

I’ll let the slide below do most of the talking, but basically, as alluded — there is nuance when taking theory into practice. And I would add, valuations are an important piece of the puzzle, but not the only piece (my approach = use many different puzzle pieces to find the true picture).

Also as a side note observation on the chart above, for those with a long-term perspective, even the most expensive markets always ended up higher in the longer arc of history (albeit those investors buying/adding on the lows vs peaks would have had a better time!)

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Learnings and conclusions from this week’s charts:

• Roundnumberitis has hit the S&P500 with a stall at 7500.

• Rates and inflation risk are the key candidate catalysts for a selloff.

• Semis look overheated following a near-vertical run.

• Retail has chased the rally with heavily leveraged bets.

• The bull case would be for broadening/rotation (e.g. software?).

Overall, the market looks to be taking a breather at a technically convenient spot (equal-weighted S&P500 stalled at resistance, the cap-weighted rolling over from 7500). The easy answer seems to be a period of letting-off steam (and steam is a key theme this week).

1. Donk!  The market hit its head on what appears to be the ceiling for now (7500 — p.s. don’t doubt the power of round numbers, AI might be the next big thing, but for now the market is ruled by us silly fallible humans and our monkey brains …and those round numbers matter immensely!)

In any case, it’s hard to keep a near-straight-line trajectory going in markets. The bull case is a consolidation or settling into a more choppy rise. The bear case would be the market takes a breather back to 7000 to let off some of the steam (see next few charts for documentation of said steam).

Source:  MarketCharts.com Charting Tools

2. Rates & Inflation Risk: one more thing, for a market that looks technically ready to take a breather —the prime candidate excuse is probably rates and inflation risk (bond yields are on the rise). Also, geopolitics embers continue to smolder.

Source:  @zerohedge

3. Steam — Momentum Melt-Up:  the steam whistling noise is very loud on this one. Momentum stocks (dominated by semis) have basically had a vertical rally relative to minimum volatility stocks (think defensives like staples, utilities). Markets don’t like big straight-line moves like that, it’s not something that persists.

Source:  @RealAlpineMacro via @SoberLook

4. Steam — Margin Trading: the steam is whistling loudly in retail trading accounts too, with margin debt balances at record highs in absolute terms and as a percentage of assets. It’s giving 2021 energy.

Source: @WallStJesus

5. Steam — Margin Debt Acceleration: as another angle on margin debt, I find you get good signals from the rate of change (as in this chart). On that note we are clearly in warning territory here (and p.s. yes, margin debt expansion is also very significant right now even if you adjust for market movements).

Source: 

6. Steam — Single-Stock ETF Assets: another pot boiling over here, the total assets in leveraged single-stock ETFs (which in and of itself is a wild product to have) has surged almost 2x off the Q1 low. In the scheme of things, these are not large numbers ($40B vs S&P500 total market cap of a about 67 Trillion), but the interesting thing is what it represents; i.e. rising retail interest in leveraged speculation in an increasingly narrow list of names.

Source:  @GlobalMktObserv

7. Steam — Speculative Leveraged ETF Trading: speaking of leverage and ETFs, this chart tracks the ratio of trading in leveraged long vs short US equity ETFs. Basically it traces the 2026 journey from Fear-to-FOMO in a flash.

Source: 

8. Steam — Semis vs Software: in case it wasn’t obvious, the rebound-rally has been heavily centered on semis, and hence we have seen a surge of flows into semiconductor stocks (meanwhile software has seen the opposite). At this point semis are a heavily crowded trade, and are significantly overbought right now.

The bullish take would be that semis might be done for now (pause/plateau?), and we are on the cusp of a broadening out of the rally and maybe bullish rotation (could easily see flows rotating out of semis into software, particularly as software stocks have seen heavy shorting; short-squeeze ahead?).

Source:  @BrianSozzi

9. Steam — Valuations: bigger picture, we are in a cyclically overheated market, the various valuation indicators say it’s expensive, and that does create a risk of rapid resets and valuation mean reversion.

But in the end, aside from freak crashes or crises, the thing that causes markets to go down in a sustained fashion (aka bear markets) is recession (earnings are the key driver of stock prices in the bigger scheme of things).

And for now there are no signs of recession. I’m keeping close tabs on that front though, so I will be sure to update as/when/if the facts change.

Source: 

10. Commodities vs Stocks: I have long been an advocate of allocating to commodities as an asset class (or alternatively a basket of commodity stocks) both tactically (e.g. in 2022, 2026) and strategically —because they are a useful way of helping diversify/protect capital, and a source of alpha/returns.

This chart/study helps spell it out: “We find that commodity futures have earned an average annual risk premium of 5.4% over the risk-free rate and a premium over US inflation of more than 6% per annum. Commodity futures have outperformed equities in roughly 43% of years and in two out of every five decades, suggesting distinct return drivers and meaningful diversification benefits“

Source:  An Index of Commodity Futures Returns Since 1871 via Snippet Finance

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Portfolio Strategy Notes — Software Sector Setup

As noted in my latest Topdown Charts report, the trend is still your friend for software stocks…

Read more

While most people are focused on AI stocks and Big Tech, this equal-weighted basket of space stocks* is up 17x off the low point in late-2022.

This reflects some major strides that several of these companies are making as the commercial space sector goes from dream to reality, but a key part of the more recent run-up is also down to anticipation of the SpaceX IPO.

My personal view is the commercial space sector and space economy will one day be much larger than even some of today’s biggest themes and sectors, and has a lot of growth ahead.

So I reckon this is something to pay more attention to if it’s not yet on your radar, and it’s probably still early days in this story…

Bottom line: space sector stocks have soared.

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

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Further Thoughts: ETF Market Share and the Future of the Space Sector…

While space sector stocks will almost certainly go through cycles of major boom and bust along the path (just look at the drawdowns in the chart above), I think that path is headed much higher in the longer arc of history.

There’s a few reasons for that.

While major progress has been made in the commercial space sector, it’s still early days. Only a handful of companies have a proven track record for launch services so far — and outside of launch, most companies are either focused on manufacturing and/or operating satellites (with much of the current use case being earth observation and telecommunications).

In the longer run it’s natural to expect this to expand to an array of orbital activities such as zero-gravity manufacturing, orbital space habitats for a variety of use cases (from tourism to media, science/R&D, defense) and logistics.

Further out (literally and figuratively) there will be science, tourism, resource extraction/processing/logistics and a host of things we can’t even imagine yet on the moon, near-earth asteroids, mars, and deep space. Particularly as we meet resource and environmental constraints on earth.

But even without that, the reality right now is that we are entering into a new space age where the big drop in cost to orbit is enabling new companies to do new things and open up whole new industries.

Coming back to earth, one interesting angle is that space focused ETFs (such as UFO, ARKX, NASA, ROKT, MARS) currently have a market share of about 0.04% — that compares to 0.32% for Aerospace & Defense ETFs (and a market cap weight for US Aerospace & Defense of just over 2%).

That means 2 things: 1. the average investor has very little exposure to this corner of the market, and 2. there’s a lot of room to move to the upside as the industry develops further and investors finally catch-on to what’s going on here.

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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
and Head of Research at Topdown Charts

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Learnings and conclusions from this week’s charts:

• The equal-weighted S&P500 has stalled at resistance.

• (and the cap-weighted is back to outperforming equal-weighted)

• We are potentially in the blow-off top phase of the market cycle.

• Investors are all-in on stocks (and all-out of bonds).

• There have been several major shifts in market structure.

Overall, the market continues to press higher (lead largely by big tech/AI) and investors in aggregate are all-in on growth and the stock bull market continuing.

Yet there are a few major changes in market structure that investors need to be aware of and some very interesting corners of the market that many are overlooking…

1. Equal-Weighted: while the headline cap-weighted version of the S&P500 is up about 8% YTD and onto new highs, the equal-weighted version has lagged behind (albeit still up ~6% YTD) and has sort of stalled at resistance. This is also reflected in market breadth, with about 43% of stocks tracking below their 200-day moving average.

Source:  MarketCharts.com

2. Equal-Weight vs Market Cap-Weight: the recent price action also marks an end to the brief rotation in equal vs cap weight, with the heavy-weight big tech/AI companies largely leading the charge. This again sees the equal vs cap weight relative price line moving further away from trend, and providing yet another echo of the late-1990’s.

Source: 

3. The Fun Part: speaking of late-1990s, if the below analog chart proves accurate, then this is what some might call the fun part of the bubble — the blowoff top where wild price moves result in profits (which may or may not be followed by pain if the analog proves accurate all the way through!).

Read more

Capital Expenditure (aka capex) by tech and tech related companies now accounts for half of all S&P500 corporate capex.

Depending on your perspective, this is either the most bullish or bearish chart you’ve seen today!

The bulls will say this is a virtuous cycle of tech acceleration where more investment enables more breakthroughs, rapid rollout and scaling, which leads more revenues and favorable funding, which enables further investment (and so-on)

The bears will say this decadal-doubling is unsustainable and a classic bubble sign + late-cycle signal (there appear to be trends and cycles in this chart).

Meanwhile, economists might quip that it amounts to crowding out of investment that might have gone into industry, healthcare, and natural resources — which will come back to bite us later as flows funnel into AI and neglect real economy capacity building.

The pragmatic view is probably a bit of all of the above.

I would suggest this does look a bit overheated (and does represent a vulnerability), but also reflects the strong cyclical/thematic updrafts helping tech stocks drift higher for longer for now. It also helps explain why commodity prices are headed higher as commodity capex remains sluggish.

So it’s an important piece of the puzzle, and part of a very interesting theme I discussed in the latest Weekly S&P500 ChartStorm…

Bottom line: Tech capex has surged to 50% of all S&P 500 corporate capex.

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Learnings and conclusions from this week’s charts:

• The S&P500 gained +10.4% in April (+5.3% YTD).

• A good (>5%) April bodes well for the rest of the year.

• Micro Cap stocks are making a big move (good sign for all stocks).

• There has been a big pivot in preference from cash-flow to capex.

• Value investing might(?) be dead, but don’t ignore valuations altogether.

Overall, the “healthy correction” thesis is playing out near to textbook, and unless some new bad news or shocks show up, that means the path of least resistance is probably onwards and upwards…

1. Happy New Month! the S&P500 climbed a scorching +10.4% in April, placing it up +5.3% YTD, and back above its 10-month moving average (which is a loose proxy for up vs down trend).

Source: 

2. Big April: one good thing about the big bounce in April is that historically returns above 5% in April bode well for the rest of the year (albeit there is a bit of variation e.g. contrast 1978, 83, and 2001 which were flat-to-negative vs 1997, 2003/09/20 which did more than 20% during the rest of the year).

Source:  @RyanDetrick

3. Big Move for Micro-Caps: one clue for a bright rest-of-2026 is the way several key risk-sentiment barometer markets like micro-caps (along with emerging markets, industrial metals, tech, and Bitcoin) have put in some very promising technicals (e.g. as shown below: micro caps successfully retesting their breakout from a large rounding base).

Source:  TrendLabs

4. Healthy Correction: meanwhile the sentiment and positioning data all continue to point to the Q1 cleanout as being basically a “healthy correction” — a turning back of the clock on the cycle without any permanent damage being done to overall market psychology (and without the type of fundamental damage that would jeopardize the uptrend in stocks).

Source: 

5. Unhealthy Obsession: having said that, there is a large amount of trust and weight being placed on the AI theme to drive earnings and stock prices higher (with the extreme optimism in long-term earnings growth displayed by Wall Street analysts being a key quantitative example).

6. New Paradigm: another angle on that is tech and tech related companies’ capex now accounting for half of all S&P500 aggregate corporate capex.

Read more

This week’s chart shows the market cap weighting of US semiconductor stocks (making record highs).

It’s a remarkable chart because at ~14% it’s basically double the level it peaked at during the height of the dot-com bubble.

It also comes at an interesting juncture as the SOX (Semiconductors Index) just chalked-up a record 17-days in a row of gains.

This is a dangerous market.

It’s dangerous for bulls because these are the types of conditions where you often encounter sharp corrections and crashes (even if it is the way of the future).

But it’s also dangerous for bears because this is basically the bubble-phase of the bull market — attempts at shorting could end up generating large losses in small time as a combination of greed, speculation, and fundamentals could drive semis even higher.

On that last point, students of market history know that booms, bulls, and bubbles start for a reason and end when things get unreasonable.

While bulls and bears often get taken by surprise in these types of markets, all my years in studying charts and observing market cycles tells me that there are always clues on the next steps for those willing to see.

And I’ll be bringing you more of these clues and views in the next Weekly ChartStorm, so stay tuned for more insights…

Bottom line: semiconductors are in the bubble phase of the bull market (which is dangerous for both bulls and bears alike!).

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Callum Thomas

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Learnings and conclusions from this week’s charts:

• There’s a minor bearish breadth divergence on the S&P500.

• Seasonality is also moving into a weaker period.

• (albeit seasonality tends to be better when stocks are up YTD)

• Semis are surging, chalking up multiple records and extremes.

• Cyclicals vs defensives are confirming the bullish macro picture.

Overall, there’s a couple of short-term technical risk flags to note (especially with geopolitics simmering and central banks in the wings) and plenty of pockets of froth still bubbling away in markets. But there’s also some bright spots (e.g. emerging markets, cyclicals vs defensives, buoyant global economy).

1. Bearish Divergence? not to spoil the rebound party, but it’d be remiss of me not to flag this obscure technical pattern. While the index managed to chalk up new highs, breadth has rolled over from a lower high. This is a classic bearish divergence.

Now, bearish divergences don’t always work —but they do highlight that there are some quibbles and irritation under the surface. The other thing is excuses/events have a habit of popping up when the market is “ready” …which is interesting because we have ongoing geopolitical issues, and a whole line-up of big central banks meeting next week, including the Fed (will anyone hike rates to stave off emerging inflation risk?).

Source:  MarketCharts.com

2. Mid-Terminal Seasonality: then there’s also the tendency for the coming months to be a bit choppy and weak during mid-term election years.

Source:  @ThierryBorgeat

3. YTD-Conditional Seasonality: on the other hand, given we’re up +4.7% YTD, it’s worth highlighting that returns tend to be positive through that period when the market is up Year-To-Date.

Source:  @RyanDetrick

4. Fun Flows: meanwhile surging equity ETF flows show sentiment is alive and well, and there is apparently ample willingness and ability by investors to keep the trend going.

Source:  Strategas Asset Management

5. Semi-Surge: meanwhile semis are just doing what semis do best in the AI age.

Source:  @TheMarketStats

6. Semiconductors Market Cap Mooning: aside from the record number of consecutive days up, semiconductors market cap weighting also made a new all-time high last week at just under 14% (about double where it got to at the peak of dot-com).

Some might say that’s too far too fast, others might say it’s got room to run as semiconductors are the new oil. Time will tell, but what is true is both charts are extreme.

Source: 

7. Ludicrous List: slightly related note, the number of big stocks with hefty price-to-sales ratios and 100%+ YoY gains is surging. Definitely some froth out there…

Read more

This chart tracks what have been two of the biggest weak spots in markets.

(and is interesting for 2 key reasons)

First: both Bitcoin and Software stocks have stopped going down (and actually are starting to look very promising from a technical standpoint)

— i.e. the weak spots are no longer getting weaker.

That’s important because in markets weakness has a habit of spreading.

But also, further upside in these two (which is looking likely) will help rebuild sentiment and reinforce the bullish outlook for stocks in general.

Which brings me to the second point…

Second: both boast a bullish tactical outlook (as I just outlined in my latest Weekly Macro Themes report)

Basically, we’ve seen a major reset in price (software down more than -35%, bitcoin off almost -50%) and a big washout in sentiment/positioning.

And yet, the longer-term uptrend remains intact for both assets.

We’ve also seen both Bitcoin & Software stocks rebound off of clearly defined support levels (and p.s. those support levels also serve as useful triggers for risk management if the bull case doesn’t work out).

So it’s a very interesting chart from a market analysis standpoint, but also for the potential upside opportunities unfolding right now.

Bottom line: the weak spots are no longer getting weaker (and if anything, are actually starting to look bullish).

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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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Learnings and conclusions from this week’s charts:

• The S&P500 has bounced back & onto new all-time highs.

• Q1 saw a major cleanout in positioning across participants.

• Two major weak spots (Bitcoin & Software) are looking better.

• Global equity technicals look bullish following “healthy correction”.

• Retail allocations to cash remain around the bottom end of the range.

Overall, following what now looks to be a “healthy correction” + a big Q1 clean out in positioning + positive technical developments — it looks like the path of least resistance is higher from here.

1. Mission Accomplished: that looks like a decisive victory.

One thing I think that stands out through this whole episode is how despite consensus bullish sentiment, crowded positioning, and stretched valuations around the turn of the year —we barely scratched -10% down on the S&P 500. I think that ultimately reflects a strong underlying trend and positive macro-fundamentals (for now at least).

And now that we’ve got the rebound and clean breakout from oversold washed out conditions, it looks like this reset has been of the “healthy correction” variety (so we probably drift higher from here).

The next few charts document the reset…

Source:  MarketCharts.com Charting Tools

2. The Q1 Clean Out — Hedge Funds (1): hedge funds trimmed longs and added to shorts, sending the longs vs shorts ratio down to surpass the 2025 tariff tantrum lows.

Read more

Learnings and conclusions from this week’s charts:

• The S&P500 has rebounded to a key overhead resistance zone.

• Semiconductors meanwhile are already out to new all-time highs.

• Tech stocks have seen a reset comparable to that of April 2025.

• The tech sector is driving overall profit margins to record highs.

• Tech stock valuations are still elevated (raising some questions).

Overall, it’s been a textbook rally from oversold conditions. The next steps will be key as overhead resistance looms (with risk shadows lingering in the background vs tech strength stirring).

1. Technical Check: bouncing from oversold conditions was the easy part, the next bit is to crack back above major overhead resistance initially at 6800 (and then 7000 to get back to new highs). This is the part where you usually have a bit of chop and consolidation, and at worst take another dip down…

Source:  MarketCharts.com

2. BMR: on that note, the real worst case is that you get a nice trading rally, but then it rolls over to go onto new lows and into bear market.

(beware the bear market rally)

Source:  @market_sleuth

3. Semi New Highs: but before we go jumping to conclusions and guessing next steps, it is important to observe what we can —and one thing we can observe is the main driver of the bull market (semis) just keeping calm and carrying on to new highs.

Source:  @JC_ParetsX

4. Semiconductors Market Cap Weight: technical analysts might muse that the recent moves in semiconductors’ market cap weighting looks like a bull flag(!)

Definitely different this time, but will it rhyme?

Source: 

5. Tech Insider Buyers: meanwhile tech sector insiders are buying up stocks like they’re running out of time. Is this a case of drinking too much of the Kool-Aid (and just buying at any and all times)? …or are they seeing things the rest of the market is not?

Read more

This week’s chart is one for the bulls.

It shows the MSCI ACWI (All Countries World Index) aka Global Equities in the black line, and 50-day moving average breadth in the red (i.e. what percentage of countries are trading above their 50-day moving average).

Breadth indicators like this tell you a couple of things.

First, they give you an early heads up on global developments as the impact spreads across countries.

Second, for a shorter moving average timeframe like 50-days, it operates as an oscillator. In other words, it gives you overbought/oversold signals.

In traditional market analysis a true overbought signal is when an oscillator like this goes to an extreme high —and then rolls over.

That second part is key.

The reason is you can get an overbought market that stays overbought and gets even more overbought, so the turning point is what gives you confirmation that a change is underway.

Interestingly, we actually got exactly these conditions just prior to the March selloff (funny how events/news/catalysts tend to show up when a market is technically “ready”).

And then on the oversold side of things, we also have a textbook example unfolding right before our eyes.

A true oversold signal comes when an oscillator goes to an extreme low —and then turns up. That’s exactly what is happening in global equities right now.

To be clear, this is a very bullish short-term chart.

Now of course it is anyone’s guess as to what comes next, and geopolitics for example could cut either way (e.g. could get better [ceasefire] or worse [regional escalation] —albeit some might argue it can’t get much incrementally worse).

And yet, as I noted the other day, there are some bright spots in the global economy, and sometimes you just have to shut up and listen to what price is telling you …(especially when everything and everyone else is telling you all sorts of conflicting messages).

Bottom line: global equity technicals are short-term bullish.

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