Strong but stretched

Overall Market Thoughts

Last week closed strong across the board. May was once again another powerful month. For the most part recent trades continue to get traction, leaders are leading, and the market continues to act constructive. There are however some signs that have me a little bit cautious short-term.

Reasons I am going to be careful this week

1. Semis are extended again. Last time they became extended 4 weeks ago we saw a quick 2 week pullback. This has been the strongest group and it looks like they need to rest again. I am pretty concentrated in semis and 2 weeks ago the weakness was a good opportunity to add exposure that I didn't really take advantage of because I was focused on managing my positions. Many leading stocks mostly in Semis but also across other growth groups like Space & Neoclouds are also short-term extended.

2. Optical/Photonic stocks were the first group to lead us higher. They deserve a rest and its best for the market if they rebase and digest their moves. We saw weakness last week across the group which is fine as long as they start base building. A full break down is not a good sign.

3. I don't mention sentiment often but the Put/Call ratio ended last week at the lowest level since 2021. This means buying is heavily skewed towards Calls as people chase this market. It doesn't mean we have to pull back but its something notable to pay attention to because whenever everybody swings too far to one side its not sustainable.

"The market likes to make a fool of the most people all the time."

4. This one is personal but April & May I made a ton of progress. Its very easy to give progress back and I want to protect it. I'm not concerned with keeping my account at highs here I know most time is spent in a drawdown but I'm not willing to give too much up.

Overall outside of those short-term observations I remain very optimistic on this market

• We have had no real distribution yet which always clusters up as a market tops.
• Stocks continue to break out, hold key levels, and act like leaders.
• We are seeing strong rotation. Even with Semis extended we saw a hard rotation into Software again last week. Rotation in growth groups keeps a bull market alive.

Semis remain the top group, but focus this week in my opinion should be on Software seeing fresh breakouts, rare earth stocks, and robotics.