The market is undeniably bullish. Everywhere you turn, investors are getting rewarded for buying stocks, not selling them.
However, from time to time, I like to play devil’s advocate. It helps me stay objective and avoid any directional bias.
You see, every break begins with cracks, and spotting them early can help us flip the script when needed.
That’s why I’m always watching for data points that challenge my thesis.
The weakness in Home Construction stocks is noteworthy to me.
They’re a reliable gauge of global growth and investor risk appetite. When they trend higher, it reflects a willingness to take risks. When they weaken, caution creeps in.
Right now, the Home Construction ETF $ITB is breaking to new lows.
The bulls want to see this offensive group start to catch up before broader risk appetite can fully confirm.
Next, let’s talk about credit spreads.
If you are going to see real stress, you will see it in credit.
When confidence is high, investors favor high-yield bonds over Treasuries. The opposite is true when caution rises: money flows back into Treasuries.
The HYG/IEI ratio hasn’t confirmed the new highs in the S&P, putting a bearish divergence on the table.
A move to new lows here could be a signal to get more cautious.
And finally, if you’re hunting for the bear case, it really comes down to Consumer Discretionary vs. Consumer Staples.
This is the ultimate measure of risk appetite.
It’s all about rotation within equities — offense versus defense.
Right now, XLY/XLP is holding above prior cycle highs, maintaining its breakout.
As long as that holds, the bull case remains intact. But if the ratio fails and gets back into the old range, expect money to rotate from riskier to safer stocks, which is often a characteristic of market corrections.
Watching for these early signals isn’t about being bearish for the sake of it — it’s about staying objective, being prepared, and knowing when cracks might turn into something bigger.
