On January 6, I warned readers that 2025 had started with a "triple yellow" signal in the Power Gauge...
As regular readers know, we use three exchange-traded funds ("ETFs") to measure the S&P 500 Index, the tech-heavy Nasdaq 100 Index, and the small-cap Russel 2000 Index.
These are the SPDR S&P 500 Fund (SPY), the Invesco QQQ Trust (QQQ), and the iShares Russell 2000 Fund (IWM), respectively.
As I noted in January, all three had kicked off the year in "neutral" territory in the Power Gauge...
Regular readers know that Marc Chaikin and I both expect to see a lot of opportunity with stocks in 2025. But as the year starts, the "triple yellow" warning is something we need to take seriously.
Meanwhile, I also looked deeper...
Combining the three ETFs, 654 of their holdings are rated "bearish" or worse right now. And 469 stocks currently earn a "bullish" or "very bullish" rating.
In other words, today you're more likely to pick a stock in "bearish" territory than one in "bullish" territory. Or more simply, you can't just "throw a dart" and hope to win in this market right now.
That's still true today...
Combined, SPY, QQQ, and IWM hold 340 stocks with "bullish" or better ratings. And they hold a staggering 638 "bearish" or worse stocks.
Things have gotten worse in the world of small caps, too...
IWM now earns a "bearish" rating in the Power Gauge. And it's down roughly 7% so far this year.
Folks, I'm sure you're feeling it...
The market is processing real uncertainty right now. And some of the cracks in the economy seem like they're growing wider.
In their most recent earnings releases, retail giants Target (TGT) and Walmart (WMT) both warned of slowing spending. And there's no question that politically spurred uncertainty is adding to the market's woes.
On Friday, Marc Chaikin warned readers that the S&P 500 was trading between two key levels. The lower level, when looking at SPY, was $580. As Marc noted, a breakdown below that level means the possibility of a full-blown correction of 10%.
Yesterday, SPY closed just below that mark. So we're right around a key support level.
Of course, that doesn't mean it's time for full-blown panic. There are two important points to keep in mind...
First, corrections are normal.
Last year, the S&P 500 soared a staggering 23%. And now, it's processing the new realties it faces.
Wall Street will reprice. But after the cycle of fear, traders will find new areas of optimism.
The second key point is that drawdowns create opportunities...
Amid pullbacks and corrections, quality stocks will defy the downtrend. And others will move into "discount" territory.
Now, with the help of the Power Gauge, our job is to identify them.
The "bearish" stocks may outweigh the "bullish" ones right now. But the Power Gauge still shows us that there are 340 "bullish" and "very bullish" names across the S&P 500, the Nasdaq 100, the Russell 2000.
And the fact is, even when the world is uncertain... stocks continue to trade.
Good investing,
Vic Lederman
