Everyone thinks the market is a bubble. Look at the equal-weight S&P.
90% of the S&P 500 rally is one sector. The average large-cap stock looks like month one of a breakout, not month twelve of a bubble.
End of the month. Time to zoom out.
Yesterday I published the Starter System — a free monthly stock-rotation playbook, full rules, 26 years of data. If you missed it, it’s in your Friday inbox.
Today I’m running the monthly charts. This is the rotation logic from the Starter System, applied to right now — you’ll see the kind of names the system surfaces on a real market.
The S&P 500 looks extended. Two huge green months, roughly a 20% bounce off the lows in a straight line. Bubble talk everywhere. But look closer. About 90% of that move is coming from semiconductors. SMH is up 70% in a few months. That’s the crazy pocket. That’s where the media noise lives.
Now look at RSP, the equal-weight S&P 500. Same 500 stocks, but every name gets the same weight. This is what the average large-cap is actually doing. Two green months, but the chart looks like month one of a breakout, not the top of a parabolic move. If semis cool off and money rotates into the rest of the market, RSP can keep grinding higher even if the headline S&P chops sideways.
Sectors I’m watching for that rotation. Marijuana names like MSOS just had their first real breakout in years. Health services in XHS has a textbook rounded bottom right at all-time highs. Bitcoin is four months sideways after going nowhere, which historically precedes the wicked moves. Natural gas just had a failed breakdown. Bonds did the same thing, which would push rates lower and help the debt-heavy small caps that have been lagging.
The setups don’t care about the bubble debate. They fire when they fire. But knowing where the rotation might land sharpens which triggers you take seriously.
17.30% max drawdown over 25 years while the S&P drew down 57%. The systems don’t watch CNBC. They look at the equal-weight chart and the sectors that nobody is talking about. When they go into drawdown, members hear about it directly in The Drawdown Memo.
Free 25-Year Backtest PDF: https://www.statsedgetrading.com/the-25-year-backtest
Stats Edge Pro at $149.99/month with a 30-day money-back guarantee, or $1,499.99/year. Founding tier at $3,000/year for traders who want a 1:1 onboarding call.
— Michael Nauss, CMT, CAIA, CDMS