I've been getting this question quite a bit lately: Does Breadth even matter?
And the answer is yes. It's a market of stocks.
Go back and study all the bull markets in history. You'll notice how as the bull market progresses, you get more and more stocks participating to the upside. You tend to see sector rotation and new leaders emerging. You also see expansion in participation across countries around the globe.
This is what is currently happening. It's all of the above.
In Bear markets, however, these things do not happen. It's actually the opposite. You see fewer and fewer stocks going up, while more and more stocks are breaking to new lows. The sector rotation turns into the last leaders catching down to the losers. And you see stock market indexes in countries all over the world falling in price, not rising.
When you weigh all the evidence, it's quite obvious that we are currently in the first category, and certainly not in the second one.
How can market breadth be deteriorating, when participation just keeps expanding?
Today's trade is in a computing company we all know. Some might think their best days are behind them, but the price action as of late would indicate otherwise.
And with what feels like a gift of a pullback to get positioned into, we're going for it!
We've had some great trades come out of this small-cap-focused column since we launched it back in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.
For the first year or so, we focused only on Russell 2000 stocks with a market cap between $1 and $2B.
That was fun, but we wanted to branch out a bit and allow some new stocks to find their way onto our list.
We expanded our universe to include some mid-caps.
Nowadays, to make the cut for our Minor Leaguers list, a company must have a market cap between $1 and $4B.
It's hard to imagine what it is that these investors are all so bearish about.
I mean, we're in the middle of a bull market, where we know historically it pays way better own stocks than to be selling them. We know. We have the data.
And yet, accordingly to the latest AAII survey, more individual investors are bearish over the next 6 months than at any point since November of 2023.
These Breakout Multiplier trades are all popping off one by one. 3 of them doubled today.
The Chinese Internet Index closed at its highest levels since mid-October, well before the Trump landslide victory (that was supposed to be the end of Chinese stocks).
It's actually been the exact opposite.
In fact, look Chinese Internet stocks relative to the U.S. Internet Index. The new lows could not hold, and now the face-ripper is here: