The US Stock Market: Long-Term Difficulty Unless M7 Big Tech Steps Up

The US stock market is currently showing mixed trends, with Tesla, which announced its earnings yesterday, being the only significant outlier.

At the beginning of the trading session, the leading index, the S&P 500, started with a slight upward trend, but now it is slightly down from its opening price, fluctuating around the breakeven point.

Below is the current daily candlestick chart of the S&P 500 index. I am personally paying close attention to its current short-term position.

The following chart compares the S&P 500 [SPX] index, RSPT (an ETF that tracks an equal-weighted average index of technology sector stocks within the S&P 500), and SPXT (an ETF that tracks the index of stocks outside the technology sector within the S&P 500). Since the latter, SPXT, doesn't explicitly mention "equal-weighted" in its name, I assume it's market-cap weighted.

You've likely heard through various news outlets that the trend since July differs from the previous trend, and the chart clearly reflects this.

The major trend from mid-July until a few days ago was the skepticism surrounding "the difficulty of making short-term profits with AI" which emerged around mid-July, followed by the "start of the Fed's interest rate cuts." This led to a slowdown in tech sector stocks, particularly those led by the Magnificent Seven (M7) after mid-July, and a relative strengthening of stocks in sectors that welcomed the interest rate cuts.

Looking at the ETFs added as line graphs above individually, here's the daily chart of RSPT (SPX w/ tech sector), which tracks the equal-weighted average index of technology stocks within the S&P 500.

Next is the daily chart of SPXT (SPX ex- tech sector), which tracks the average index of non-technology stocks within the S&P 500.

Technology stocks within the S&P 500 index have only slightly increased from their July high, but stocks in other sectors have risen significantly more than in July. This has been the trend for the past three months.

The next chart shows the ETF that tracks the Magnificent Seven (M7), comprised of seven major mega-cap tech companies including Nvidia, Apple, and Microsoft.

This is still significantly below its July high.

Recently, US Treasury market interest rates have surged along with the value of the dollar, causing stocks outside of the big tech companies to struggle.

It feels like a complete cycle, so it will be crucial to see if these M7 stocks can surpass their previous high from July. This is a very important juncture.

If they break through and continue to rise, the US stock market is likely to see a significant further surge. Conversely, if they fail to break through and the big tech companies lose momentum, it could lead to a technically challenging situation.

This challenging situation, as I've often mentioned in the title of this post, could mean that we might need to remove the qualifier from the phrase "long-term peak area," suggesting that the area might not be a long-term peak after all.

I think the M7 index needs to break through its previous high by mid-November at the latest. Otherwise, July and the current point could become two technically distinct short-to-medium-term peaks.

If, before that, we see lower lows, long-term holding games with ETFs like TQQQ, QLD, and QQQ that follow the composite index might become meaningless. Instead, instead of the index-tracking game, which is based on a firm belief in the long-term upward trend of the US stock market, a shift towards stock selection, even if it's within the big tech sector, might be preferable.

(If opportunities remain in some big tech companies while the index is stagnating, some will likely leave the M7, resulting in further consolidation).

Of course, even a long-term peak doesn't necessarily mean an immediate long-term downward trend. There are other possible paths.

In short, this is just a brief summary of my personal perspective for those who engage in long-term investing. Please take this lightly and use your own judgment in your investment decisions.