What Are the Worst Ones Doing?

JC Parets
December 14, 2021

We talk a lot about relative strength around here.

"Which are the strongest stocks and sectors?"

"Buy high and sell higher!"

"What's on the new 52-week high list?"

"How many new highs are we seeing?"

These are all questions we're regularly asking. Like every day.

But at the same time, it's important to understand what's not working. And what are the implications of those things not working?

There are two main groups on my radar.

One is the defensive group. These are the things that are likely to do the best if stocks and other risk assets are under serious pressure.

These are US Treasury bonds, gold, and the Japanese yen. As you can see, we haven't seen much of a bid this year for any of them:

So, one, they're not working, and, two, these not working is probably good for stocks, and not a bad thing.

The other group is the Big 4 that peaked in February. There are more stocks and industries that look like this, but these will give you a good idea of what I mean.

Here are biotechs, Chinese internet, the ARKK disaster, and the IPO Index Fund.

This is a picture of pure excess and enthusiasm, followed by a swift kick in the gut back to reality. Remember SPACs?

There are a lot of individual stocks that look like these charts. Keep in mind that the average Nasdaq stock is down like 37% or so. Is that bear market territory? ;)

So, at this point, we know who the culprits are. We can point to these areas as the ones dragging down the rest of the market.

You have your losers.

How bad can it get though? Are these groups the tech of 2000? Are these the financials of 2007?

If you believe they are and the rest of the market is going to catch down to these, then you're likely looking for new lows in all of these groups.

And if we're breaking down further in all these areas, there are likely bigger issues out there and the rest of the market may come tumbling down too.

Maybe.

But let's take the other side of that, just for fun. What if -- and hear me out -- what if these don't keep going down?

What if rotation comes in and the mean reversions begin?

What then?

What if they can't knock down the worst names any further? What if they knocked them down enough? Or knocked them down too far?

Have you noticed how everyone is a market breadth expert now?

Smells fishy.

If you're an optimist and you think we rip into the end of the year and into 2022, then these are the ones you want to watch.

The defensive stuff like bonds and gold and the yen can't catch a bid, even in the midst of these disaster groups and severe drawdowns in the average stock.

If they can't do well in that environment, when are they going to ever do well?

My eye is on the biggest losers.

If they catch a bid, look out.

We discussed all of this on last night's call.

I actually set a new personal record for a presentation with 212 charts. Until last night, 176 had been my record.

We clearly had a lot to discuss.

These are some important times. We need to pay extra attention.

You can find the video of the call and slides to download here along with all our other live video calls since 2015.

Let me know what you think

JC

 

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