What Are the Worst Ones Doing? 2022 Edition

JC Parets
January 24, 2022

Every bear market has a culprit.

There's always that one sector or group of stocks that drags the rest of them down.

In 2007, for example, it was Financials and Homebuilders. In 2000, of course, it was Tech and Growth.

This time around, it's been Small-cap Growth, and overall underperformance from Growth in general.

But these 4 are the ones we've been pointing to as good representations of this cycle's culprit, or potential culprit anyway. You never actually know until afterwards.

Since stocks peaked last February, the evidence has been pretty clear that these are the ones that paint the best picture of what's been going on over the past year:

I highlight the new lows because we've believed it's been critical for the overall market for these to stop going down.

Because if it was going to hit the rest of the market, you'd likely see new lows in these first.

And that's what's happened.

What started here has continued to drag down the others.

From mid-December:

How bad can it get? 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.

This is what that looked like at the time:

I remember thinking, man if these things can stop going down, then that rotation could take the indexes much higher. But if they don't, wow look out.

I think the fact of the matter remains, if things are going to improve, these things need to stop going down.

These are clearly the culprits.

And as we mentioned last week, if we lose rates and oil too, then there's nothing left for the bulls.

There's been nothing to talk about from the long side if the Nasdaq100 was below 380. There's even less to talk about now if it's below 350:

For us to have a bullish conversation about the Nasdaq, the QQQs need to be above 350.

Last I checked over 70% of the Nasdaq stocks were down 20%. And the average Nasdaq stock was down over 40%.

We still haven't seen improvement there, for more than a day anyway.

I think we're going to need to see this 350 stick before things get better overall. These are the culprits.

JC

 

 

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