Interested in finding out where you and your clients need to be positioned as we open the back half of the year?  Join our team next Wednesday July 16th at 1PM EST in our Quarterly Webinar to discuss the "Weight of the Evidence" as we enter what will undoubtedly be a busy back half of 2025. NDW's Senior Portfolio Manager John Lewis will discuss what he has his eye on from a technical perspective,  while Nasdaq's macroeconomic experts Phil Mackintosh and Yanni Angelakos keep you up to date with all the latest headlines and what you need to know to cut through the noise. Register here. CE Credits Available!

Beginners Series Webinar: Join us on Friday, July 11th at 2 PM (ET) for our NDW Beginners Series Webinar. The week's topic is: Understanding Relative Strength (RS) & the Matrix. Register Here

The core of the market has seen an extremely strong rally over the last several weeks, rising more than 25% from its lows seen in April to take us back to all-time highs. However, the swift recovery of the market has left many indices trading in extended territory. The S&P 500 index funds groups within Asset Class Group Scores, which we look at as the “core of the market,” holds an average overbought/oversold (OBOS) reading of 110%. Readings above 100% place a security above the top of its ten-week trading band, signaling that it might have an increased chance of pullback or consolidation in the near-term. Given the overbought posture of the market’s core, should we be warry of a potential slowdown?

While the S&P 500 group is in extended territory, the group sees OBOS readings above 100% more than one might expect. Since the start of 2004, the group has been over 100% overbought for roughly 12% of the time, so our current position isn’t an extreme abnormality. Readings above 150% would be much rarer, as they happen only 1.4% of the time. 

Looking at previous times the core was overbought, the market wasn't always due for a correction in the following months. There have been 36 other instances since 2004 in which the S&P 500 group had a reading above 100%, excluding clusters within ten weeks. Historically, those overbought periods see negative to muted returns over the next one to two weeks, which is consistent with the near-term nature of the OBOS metric. However, overbought periods typically saw solid returns across longer horizons, as the average one-year return is 10.8% with a 86% positive rate. Previous instances also saw limited downside over longer periods, with the worst one-year return being -6.53%, which is low in comparison to the maximum one-year return of 32.44%.

Every market environment is different, so historical averages can only provide so much color on what the future might hold. However, most long-term metrics continue to point towards domestic equity strength. The core percentile is at a historically impressive 97% while domestic equities have extended their lead within DALI to 15 signals. Meanwhile, most participation indicators continue to sit in productive territory. While we could see some slowdown in the near-term, the weight of the evidence is still overwhelmingly positive for the long-term picture of the market’s health. That said, this year has seen lots of swift changes, making it even more important to stay updated on the latest relative strength developments as they occur. 

One of the key aspects of effectively managing a momentum or trend following strategy is removing laggards from your portfolio and replacing them with stronger stocks. For some, this can be an uncomfortable process. Most of us are inherently loss-averse and selling the laggards often means realizing losses. Often, it also means selling formerly strong names that have broken down, even if you have a hunch that they might turn around. As we’re now just over halfway through 2025, this is an opportune time to weed out any laggard positions you may have. To make this process a little easier, we’ve put together a list of some of 2024 strong performers that have fallen out of favor this year. Our list is made up of S&P 500 stocks that outperformed the benchmark last year, gaining more than 30%, but have fallen out of favor and now have weak technical attribute ratings.

TSLA Tesla Inc. ($307.18) - Autos and Parts – TSLA was one of one the biggest beneficiaries of the post-election rally last year and finished the year up more than 60%. However, since then, things have turned south as the Cybertruck has disappointed and revenue across all models has declined significantly from last year. As with many stocks, TSLA is trading well of its 2025 lows, but after violating its trend line earlier this week, it has fallen to an unacceptable 2 for 5 TA rating. TSLA has overcome major challenges before, so we wouldn’t rule out a potential turnaround, but at this juncture the weight of the technical evidence is negative.

TPL Texas Pacific Land Trust ($1,047.35) - Real Estate – TPL had the biggest 2024 gain of any stock on our list, as it was up over 110%, even after a significant sell-off at the end of the year. TPL recovered from the April sell-off with the rest of the market, giving multiple consecutive buy signals. However, while the major indices continued to climb and are now trading at all-time highs, TPL dropped sharply in June, falling back to into a negative trend and is trading only about 5.5% off its 2025 low. With the stock now sitting on multiple consecutive sell signals with a weak 1 for 5 technical attribute rating, it is a prime candidate to eliminate from your portfolio if you have exposure.

Eliminating laggard positions and realizing losses can be an unpleasant task, but just like weeding a garden it is necessary.

Daily Option Ideas for July 10, 2025