The Best Stocks You Don’t Own
A Technicians Dream
Owning the S&P 500 is not the same thing as owning the market.
When you buy the S&P 500, you’re buying a cap-weighted index with a big overweight to large-cap Technology and a handful of mega-cap growth names.
That’s great when those stocks are working.
When they’re not, it starts to feel like trying to hold back a fart after a night of Indian food.
An uphill battle.
And that’s what makes this kind of environment a Technician’s Dream.
When passive buy-and-hold exposure starts getting dragged around by yesterday’s leadership, the people willing to do the work underneath the surface get rewarded.
Because the best stocks right now probably aren’t the ones everyone’s talking about.
They’re probably the ones you don’t own.
Let’s get into it.
The Index Is Fine. The Opportunity Is Underneath.
The S&P 500 isn’t broken.
Price is still above the April low anchored VWAP and above the 200-day moving average.
The broader trend is still intact.
But underneath the surface, something more interesting is happening.
The percentage of S&P 500 stocks above their 20-day moving average continues to improve.
We’re seeing higher lows in short-term participation, even while the cap-weighted index looks a little tired near the highs.
When the index looks choppy, but more stocks underneath the surface are improving, that’s where technicians can add value.
That’s where relative performance can show up.
That’s where you can generate alpha instead of just sitting in the same crowded names hoping they wake up.
The equal-weight S&P 500 is telling a similar story.
RSI is staying above 50, which keeps the structure in that bullish, innocent-until-proven-guilty regime.
The “Lag 7” are masking the strength….
The reason the S&P 500 looks a little heavier isn’t complicated.
It’s the big guys.
Tesla, Nvidia, Amazon, Microsoft, Google, Apple, and Meta still matter because they dominate the index.
Passive investors own more of them every week whether they realize it or not.
But the group itself doesn’t look great.
The MAGS ETF failed its breakout.
RSI ran into resistance near 50.
Several names are stuck in messy moving average and anchored VWAP traffic.
That’s not exactly where I want to spend my whole weekend.
Meta looks like AVWAP purgatory.
Microsoft looks rough.
Amazon looks mid.
Nvidia looks fine, but one stock doesn’t make a healthy tape.
The point isn’t that these stocks have to crash.
The point is that they’re no longer the only game in town.
And if they’re not leading, owning the S&P 500 becomes a very different experience.
That’s why we have to look below the surface.
Breadth Is Broadening Where People Aren’t Positioned
The sector breadth work is where this gets interesting.
Technology and Communication Services are the weak spots below the 50-day moving average, which matters because those are the areas carrying a lot of weight in the S&P 500.
But underneath the surface, participation is improving in places like Real Estate, Financials, Industrials, Utilities, Health Care, and Consumer Staples.
That’s the market of stocks doing something different than the stock market.
The same message shows up in growth versus value.
Growth has been taking a breather, while value has started to improve.
That doesn’t mean the bull market is over.
It means the baton may be getting passed.
Small caps versus large caps are telling a similar story.
They’ve broken higher and reached overbought conditions for the first time in a while.
Could they pause here? Sure.
But the better question is, why didn’t you already have some exposure?
The puck is moving away from the same mega-cap names everyone already owns and into areas that have been ignored, under-owned, or flat-out hated.
Narratives are cute but price pays.
The Best Stocks….
This is where the work gets fun.
Biotech has been one of the cleaner leadership areas.
The setup was simple, an uptrend, a consolidation, then a resolution higher in the direction of the trend.
No need to write a dissertation on rates, drug pricing, or the dollar.
The chart did the work.
Health Care boradly is also waking up.
The sector reclaimed key levels, RSI held above 50 on the pullback, and providers have been especially strong.
Names like $UNH ( ▲ 2.98% ) , $CVS ( ▼ 0.31% ) , and $CNC ( ▲ 1.48% ) are worth taking a look at.
Pharmaceuticals continue to act well too, a space I’ve been annoying about having exposure to. But it’s paying off.
JNJ, MRK, and LLY are all part of that conversation.
Industrials are another area people probably don’t own enough of.
While the S&P 500 looks a little tired near the highs, Industrials are sitting right near all-time highs.
Names tied to infrastructure, aerospace, defense, and electrification still deserve attention.
Insurance might be the funniest one because nobody wants to talk about it.
Progressive, Chubb, Travelers, Allstate, AFLAC.
Pull up the charts.
Some of these things look like they cured cancer and invented the next AI chip before lunch.
Banks are improving as well.
KBE continues to build higher lows, pressing out of bases, and showing better structure.
There are plenty of individual names worth digging through here.
The broader point is simple.
The best charts aren’t all in the same mega-cap Tech names everyone already owns.
They’re showing up in under-owned, under-loved areas of the market.
That’s the opportunity.
My Two Cents
The best stocks right now aren’t the ones dominating the headlines.
That’s what makes this environment interesting.
The S&P 500 can look tired because the mega-caps are taking a breather, while the average stock and the under-owned groups quietly improve beneath the surface.
That’s not a problem.
That’s opportunity.
But only if you’re willing to do the work.
Because in this tape, the narratives aren’t paying the bills.
The charts are.
Anyway, that’s my two cents.
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Cheers,
Larry Thompson, CMT CPA
