It's another day of record high for the S&P500 and the Nasdaq, with both up 0.43% and 0.90% respectively. However, you have to read through the tape to understand market's sentiment. Today you see Facebook, Apple, Amazon, Netflix, Google - the 5 tech/growth behemoth which take up a whopping 25% of the S&P500 - all up big, and on no particular news. Meanwhile, value/industrial/cyclical stocks such as banks, travel and consumer discretionary are all down, for example Ford down almost 2%, giving nearly all what it made last Friday. The latter follows 10 year treasury yield, heading down today after getting some bid last week, on worries once again that when the FED removes stimulus the economy is going to experience reopening hiccups, especially with the Covid variants. The former counters the move of 10 year treasury yield and the value/cyclical group, when investors do not feel like betting on the upside of the cyclicality of the economy, this secular growth/tech group appears to be favorable. In layman's terms, because of Covid-related slowdowns in economic activities, and possible further slowdown when FED's stimulus is taken away, investors sold Boeing today and in exchange, they buy Apple which has a secular and stable growth nature. 

We continue to advise clients to stay diversified and investing based on fundamental thesis, not based on what is going up. We don't want to give up on Boeing because we have a strong thesis on it, and we don't want to chase Apple up because we have a good cost basis and it looks extended up here.

As we've been trying to prepare you for much of August, although it didn't happen YET, we're heading into the toughest part of a calendar year for the stock market. Below is the data, averaging from 1964-2015. 

Let's take a look at what happened to the growth/tech sector, represented by QQQ - ticker for ETF which invests in 100 biggest tech companies - in the September period of 2020. From March 2020's Covid's low, there is a upper trendline that can be drawn. In September 2020, the QQQ touched the trendline and then pulled back vigorously, ~14% in just a month. 

Let's take a look at what we have been doing from September 2020 until September 2021.

We've been on an uptrend, but we're now at the upper limit of that uptrend. What can happen when we're at the upper limit of an uptrend? 3 scenarios:

i) Break the upper limit and head higher. Very unlikely (10% possibility), given September is a weak period for the stock market seasonally. And we really need tremendous news to prop up market; right now we do not see any.

ii) Hover around this area, hugging the upper limit, not breaching the upper trendline but also not going down substantially. We think this can happen (30%). Given the rotational market that we've been experiencing, it is not unexpected. For those in favor of this scenario, one could argue that the worst possible news have been priced in: FED tapering this year. For more news/ analysis about tapering, see here. 

iii) Break down substantially towards the lower trendline. We are betting on this to happen (60%). Again, September is a weak period, as people come back from vacation and simply take profits in stocks that have run substantially through the summer. If you do an On-Balance Volume analysis, you will see that much of summer the market has been going up with bad breadth and relatively low volume. As a result, lower prices simply need to be revisited. Moreover, we haven't experience a meaningful 10% correction since, actually, last September. It's time that we have one.