RPP Report: Review. Preview. Profit. (02-08-2021)

From the desk of Steve Strazza @sstrazza

At the beginning of each week, we publish performance tables for a variety of different asset classes and categories along with commentary on each.

Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.

In last week's report, we played "devil's advocate" and laid out some of the more bearish developments we could find out there.

But all-in-all, the market is still providing bears less room to make a sound argument. We continue to find that any bearish evidence is primarily isolated to shorter timeframes... and even then, still overwhelmed by the abundance of bullish data points.

So while a minor rise in volatility can be expected in what tends to be a seasonally weak month of February, over a longer timeframe, we're still aggressive buyers of stocks.

When we poured over our chartbooks this weekend, it became clear that there are eager hands for risk assets, as countless pullbacks were met with overwhelming demand.

Sentiment right now is also incredibly supportive of higher prices as investors are clearly still skeptical of this rally. This was illustrated well when the VIX was bid up to its highest level in history during just a 5% pullback at the end of last month.

This is all supportive of our case that a brand new bull market is just leaving the station.

With that said, let's jump right into this week's report with our US Index table.

The green on our table is becoming obnoxious at this point. Micro-Caps $IWC are up 17% in the last month, and 48% over the last 3-months...

C'mon, if you've been bearish over this period, you've been simply wrong.

What's more, is that these gains aren't just isolated to short timeframes anymore, Micro-Caps are actually beating the Large-Cap Growth-heavy Nasdaq 100 $QQQ over the last year. Who could have seen this coming at the height of the March crash?

These gains are incredibly encouraging from a risk appetite perspective.

Although, many of you are probably looking at this chart and asking... "Isn't this trend super-extended?"

Well, we continue to make the argument that things are NOT extended as long as you're looking out beyond the very near-term.

Here are some reasons why:

• Looking around the World, global markets are resolving out of multi-decade bases and/or reversing their secular downtrends.
• Large and Mega-Caps have mostly gone nowhere for 5 months and many are just now breaking higher.
• Most stocks are finally back above their January 2018 highs, a critical level for many of the major indexes.
• And while it may be hard to believe, the median stock - measured by the Value Line Geometric Index, is breaking out of a 23-year base.

In other words, on balance, the stock market has made almost NO PROGRESS for 23 YEARS. Take a look.

As extended as these recent gains appear, from a longer-term perspective, the evidence continues to mount that we're at the beginnings of a new secular uptrend in stocks, not the end of one...

Let's keep this ball rolling and move to our Sector ETF section.