Week #45 Peter Lynch's Optimism; Zweig's Thrust Indicator Says "Bull is Back"; "Power Period" Pays Off

MIni Millionaires; A million choices

Today at a Glance:

One Quote: "I love it when stocks go down."

One Technical Signal: Zweig’s Thrust says, “Bull is Back.”

One Good Week: “Power Period” Pays Off

One Big Trend: Who Wants to be a Mini Millionaire?

One Million Choices: The Perils of Abundance

One Quote

"Absolutely," Lynch replied when asked whether he's optimistic about the Russell 2000, a small-cap index. "I love it when stocks go down."

With a 29% average annual rate of return over 13 years at Fidelity, Peter Lynch certainly earned his place on the Mt. Rushmore of investing.

Recently, Lynch revealed his favorite type of stock in today's bifurcated market.

As Lynch sees it, indexes like the S&P 500 and Nasdaq have been propped up by a handful of high-flying tech stocks.

But scratch beneath the surface, and it's a vastly different story.

"The truth is, we've been in a stealth bear market for a long while now if you don't count those 10 or so darling mega-caps," Lynch remarked with his trademark wit. "And that spells o-p-p-o-r-t-u-n-i-t-y for bargain-hunting investors like you and me."

Lynch called particular attention to the downtrodden Russell 2000 small-cap index, which he described as "on sale" with many compelling valuations.

"With the big boys hogging the headlines, these smaller stocks have gone unnoticed and underloved," he quipped. "But smart investors know that's where the real deals are."

While tech giants grab the glory, Lynch urges us to scan the market's forgotten corners.

"Find 'em small, buy 'em cheap, and watch 'em grow," he might say with a twinkle in his eye.

These are the kinds of stocks I focus on in Microcap Moonshots.

You can sign up for a free newsletter, Microcap Moonshot Weekly, here.

One Technical Signal

Zweig Breadth Thrust Indicator Says Bull is Back

Breadth thrusts on the NYSE have long grabbed investors' attention - and for good reason.

When these signals fire, stocks tend to rise broadly and strongly across sectors.

The legendary Zweig Breadth Thrust just triggered, sparking a rally that history shows has strong legs to run higher.

First key point:

The Zweig Breadth Thrust has a perfect track record since 1950, without a single false signal. When the 10-day exponential moving average of NYSE Advances-Declines cycles from below 40% to above 61.5% in 10 days or less, the S&P 500 has risen every time over the next three to six months.

This consistent reliability makes it the gold standard of breadth thrusts.

Second key point:

Past Zweig Thrust signals have led to gains across most sectors, not just speculative pockets of the market. The 1950s, 1960s, and 1990s saw technology, financials, industrials, and even utilities participate.

This broad rally indicates the thrust is picking up on a durable turn in market internals.

@sentimentrader.com

Third key point:

While some breadth thrusts failed in the 1930s, the Zweig has been perfect in modern markets. 2022 saw other signals misfire, but the fact this gold standard thrust fired now carries more weight.

False signals last year may reflect a changing market structure, but this one has decades of data proving its edge.

The triggering of the legendary Zweig Breadth Thrust, with its spotless modern track record, calls for broad sector gains in the coming months based on historical data.

This thrust stands out for its consistency and breadth.

 Don’t ignore it.

One Good Week

"Power Period" Pays Off

Last week's market rally caught most investors off-guard. That said, it also reaffirmed some critical aspects of market behavior.

Here are three of them.

1.   Power Period Pays Off

Last week, I highlighted the U.S. market’s "Power Period."

I noted that the six trading days between October 27th and November 3rd have a strong history of bucking any gloomy market narrative.

In over 70 years of market history, this six-day period has seen the S&P 500 gain ground nearly 75% of the time.

2023 now falls into that category.

The major US averages came off their best week of the year so far. The Dow ended last week up by 5.07% for its most significant weekly advance since October 2022.

The S&P 500 advanced 5.85%. The Nasdaq Composite jumped 6.6%. It was the best week since November 2022 for both indexes.

The reason for this anomaly is unclear. But I’m reminded of Renaissance Technology’s Jim Simon admitting that his firm trades hundreds of statistical anomalies for which there is no explanation.

No doubt they traded this one.

2. Market Sentiment Indicators work

I look at the CNN Fear and Greed indicator every day. I think of it as the thermometer of the market,

In my experience, buying stocks during times of "extreme fear" pays off.

"On Friday, October 27th, the indicator stood at 23, suggesting “extreme fear.”

By Friday, November 3rd, it closed at 42- still "fear"- but edging back to "neutral."

Sure enough, the market rallied sharply.

The lesson?

Fear morphs into FOMO with surprising speed.

3. A Few Trading Days Account for Most Market Gains

If you were out of the market last week, you missed out.

And that could be a bigger problem than you think.

Consider a 2021 study by the Bank of America. Looking at data going back to 1930, the firm found that if an investor missed the S&P 500's ten best days each decade, the total return would stand at 28%.

If, on the other hand, the investor held steady through the ups and downs, the return would have been 17,715%.

That's the most compelling case I've ever seen for staying fully invested.

One Big Trend

Who wants to be a Mini Millionaire

A seismic shift is occurring in American wealth. The upper-middle class is ascending to mini-millionaire status like never before.

Skeptics, beware - this is no statistical blip.

For the first time, the average net worth of U.S. families has surged past the $1 million mark.

Jumping a whopping 42% from $749,000 in 2019, the explosion in wealth is staggering.

About 16 million American families - just over 12% of the population - are bonafide millionaires.

So, who are these newly minted mini-millionaires?

You might expect them to be big-shot CEOs or hot-shot tech entrepreneurs.

But the reality is quite different.

First, it's not just the uber-rich driving gains. From 2019 to 2022, families earning $150k to $250k annually saw their net worth explode by a staggering 69% to $747,000. These ordinary upper-middle-class households now comprise over 13 million mini-millionaire families.

Second, education pays dividends. Marc Zuckerberg dropped out of Harvard. Elon Musk and the Google boys dropped out of Stanford. But for the rest of us who bothered finishing our degrees, college pays off.

A college degree is the surest path to millionaire status. An astonishing 45% of college grad families aged 55-64 now rank as millionaires. One-quarter boasts over $2 million in assets. No wonder the average college grad's net worth exceeds $2 million.

Finally, the bipartisan American dream is alive and well. The media's constant focus on the top 1% obscures the reality - millions of upper-middle-class families have amassed fortunes through hard work and education.

The proof is in the pudding. Sixteen million American families now hold over $1 million in wealth. 8 million top $2 million. Yes, challenges remain.

As John Steinbeck once wrote, the U.S. "didn't have any self-admitted proletarians. Everyone was a temporarily embarrassed capitalist."

Everyone dreams of becoming a millionaire. And many are embarrassed they haven't.

The conventional wisdom is that only the top 1% benefits from a growing economy is false. Millions of ordinary, upper-middle-class Americans have built massive wealth through diligence and education.

Steinbeck's vision of a nation of "temporarily embarrassed capitalists" holds after all.

One Million Choices

The Perils of Abundance

Most people probably shouldn't do anything other than have index funds….. Why should [the average investor] try and pick his own stocks? He doesn't design his own electric motors and his eggbeater.

-Charlie Munger

We're drowning in an ocean of investment choices. With over 742,000 managed products already available, experts warn we could hit a staggering one million by 2031.

But more choice doesn't equal more wisdom.

Instead, we're left treading water, paralyzed by decision overload.

First, new products launched far outpaces investors' ability to evaluate them properly. While mutual funds led in the 90s, the 2000s saw an explosion in ETFs and other complex products. However, few have the expertise to determine if these genuinely provide value. The result? Analysis paralysis even among seasoned investors.

Second, more products aren't translating into more knowledgeable investors. One-quarter of investors report feeling uncomfortable making investment decisions. Advisors don't rank much higher in perceived value than websites or news sources. More white noise only muddies the waters.

Finally, complexity is the enemy of good returns. Indexed portfolios consistently outperform most actively managed products after fees. Yet we fall for the siren song of the hot new thing. Given a million options, the urge to tinker can destroy discipline.

The verdict is clear: more choice isn't the solution. For most investors, a focused, low-cost, passive approach is the safest choice. And if you want to try your hand at stock-picking, set aside a unique account for that.