The Top Has Been Getting Taller, But Stocks Have Peaked

I have been sharing my negative views on stocks here since March 5, when I discussed my outlook for Nvidia (NVDA) and Super Micro (SMCI). I said to get out of these stocks, and one, Nvidia, has increased a lot. SMCI has dropped. On April 10th, I said that stocks are scary. I warned about the S&P 500 and the NASDAQ 100, and both are up a lot:

Most recently, a week ago, I said that Tesla (TSLA) is a sell again. Whoops! It was about $235 that morning, and, today, it traded as high as $271, setting a 2024 high and leaving it up 9% year-to-date. Now, the stock is at $244, down 7% today. Was this bad for me? No, I shorted a lot this morning.

Why is the market reversing today, a day of great news on the inflation front. As I said here on June 11th: Interest rates are the big story, and today's CPI for June was better than expected. Rates have declined. The two-year government yield is 4.50% right now, the five-year is 4.12%, the ten-year is 4.19%, and the thirty-year bond is yielding 4.40%.

Stocks and stock-futures shot up ahead of the market open, but they are down a lot now. Except for the small-caps! I suggested that "small stocks are struggling" a month ago, and that maybe one day they will work. Today! I actually switched some of my short from QQQ, which is down 2% today, to IWM, which is up 3.3%. I own Big Five Sporting Goods (BGFV), Conn's (CONN), Fresh Del Monte (FDP), Southwest Airlines (LUV), which I bought today, Spartan (SPTN) and Walgreen's (WBA). I have trimmed some of these positions and have exited TrueBlue (TBI) at a profit and Mattel (MAT) at a small loss.

I think that the action today is very alarming, but I can understand the conclusion, which I think is incorrect, that I am so happy to be right today that I am staying wrong. We are in a bear market already, in my view, except for a few very large stocks. The "Magnificent Seven" are doing so well, even with the drop today:

6 of the 7 are double-digit (or triple-digit) percentage gainers, and all of these are up more than the S&P 500. Just Tesla is down.

I think that the Federal Reserve is likely to not adjust rates lower in the very near-term unless the economy proves to be much weaker than expected. Even if they do, the valuations of the Magnificent 7 are too high. How low can stocks go? Well, I discussed this in April. I still think that 320 to 340 on the SPY is ahead, and SPY today above 562. It is currently just below 557, and the decline to the high end of my range would be 39%.