The Problem With ‘Good Markets’ Making New All-Time Highs
Also, a drone maker is on my radar.
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The indexes hit new all-time highs on Monday morning, but have reversed from the opening levels and have limited positive momentum. Breadth is solid at around 2-to-1 positive, but the Magnificent Seven MAGS names are lagging with a loss of 0.2% while small caps IWM are up 0.2%
Small caps have been laggards for years, but there has been better technical action there, and Goldman Sachs Global Investment Research estimates that earnings per share growth for small caps will hit 18% in 2025 vs. just 7% growth for the S&P 500. If that does develop, there will be some very interesting rotational action taking place.
Currently, we are dealing with a clear bull market. There is plenty of celebration with over 700 stocks hitting new 12-month highs and plenty of strong momentum. Most investors would consider this to be a "good" market. When stocks are trending higher and there are almost no pullbacks, that is pretty good for investments.
The irony of "good" markets is that they don’t offer many great opportunities. If you have idle cash to put to work, then this market is not so good. Entry points are extremely difficult because most stocks are technically extended, and valuations are becoming more aggressive. Even worse, there are now dips that make trading a little easier.
Outperforming in a very strong market is much more difficult than outperforming in a poor market. Poor markets favor astute stock picking while strong markets favor riding momentum in key sectors.
It is nice to see so many stocks hitting new highs and becoming quite extended, but if you are looking to put some cash to work, this is not so great.
Drone Maker on My Radar
One small stock that is on my radar this morning is Ondas Holdings ONDS, which manufactures drones. Its subsidiary, American Robotics, is reportedly in talks with the New York City Police Department for technology that can detect, track, and intercept “hostile drones,” Deputy Mayor of Public Safety Kaz Daughtry told The New York Post.
Ondas has developed a portable "drone station" that can launch two or three 8-pound drones capable of intercepting a suspect drone in midair by firing a lightweight mesh net at the invasive drone, entangling its rotors and preventing it from flying.
The stock is moving above a recent consolidation range and is seeing a solid increase in volume.
There is some profit taking hitting the Magnificent Seven today, but breadth is holding up nicely so far.
At the time of publication, DePorre was long ONDS.
