The Pond is Shrinking

By now you have likely heard of the chronic case of bad breadth that the S&P 500 is experiencing, meaning poor overall participation from a proliferation of stocks and sectors. That said, bulls are all too eager to counter that a shrinking pond is irrelevant these days, as the likes of GOOGL, MU, and SNDK (among others) go up every single session without a care in the world as long as the AI party, well, parties on.

Still, the level of concentration of capital in the leadership of this market now objectively rivals the NIFTY FIFTY bubble of the early-1970s, the Nikkei bubble in Japan in the late-1980s, and the dot-com bubble at the turn of the century--The concentration is above 40% of the S&P 500 Index. And that begs the question of not "if" but "when" the AI bubble pops. History suggests it will not likely be any one flashy moment of epiphany but, instead, a seemingly random moment in time when it all just stops and does not come roaring back. 

So while the pond shrinks, we note consumer icons like LULU NKE weak and getting weaker; same with Ford, even Chipotle. 

And the elephant in the room may very well be housing, clearly a centerpiece of America's economy.

The recent sharp rally in April looks to be nothing more than a "right shoulder rally" for the XHB, ETF for the homebuilder stocks, seen on the updated daily chart, below. Note the failure at the 200-day moving average (yellow line) and broader, sloppy pattern going back quarters. Today's weakness is even more glaring. 

This price action suggests that, with a few exceptions as always, housing on a national scale is rolling over. A deteriorating housing market typically means a sluggish consumer, which eventually means more layoffs and less "flows" from passive investing/401Ks. In other words, all of the seemingly amazing previous tailwinds for equities are at risk of reversing if you agree that housing is truly cracking.