"We should be doing more in China." ~ JC Parets during this morning's internal Analyst meeting.
This, coupled with my feeling that we need to be more aggressive in the stock market right now as the potential profits on the upside could be quite meaningful, playing in China is as aggressive as it gets.
In this scan, we look to identify the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).
Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.
But the scan doesn't just end there.
We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.
These last six months in the crypto market have reflected the utility of patience in trading. Because we view trading through a financial lens, we always assume that risk management is preventing financial loses. And as such, we integrate strategies to mitigate against such losses.
These include stop losses, invalidations, and hedging strategies.
And while these are imperative in preventing losses from spiraling out of control, there is another aspect that gets commonly overlooked.
And that is psychological risk management.
Just like our portfolio value, we need to maintain a healthy balance within our inner emotional and psychological wellbeing. When we have a prolonged stretch of losing money in the markets, it negatively weighs on our mind. As such, this can create a negative feedback loop whereby we make decisions without awareness of the emotions in behind them.
A few years back, Robinhood made a big splash in the retail trading world by offering Commission-Free options trading.
Retail traders and the media that served them rejoiced!
"This is a game-changer!" they shouted.
And in some ways it was. But not in the way you might think.
It changed the game for retail options brokers to be able to attract multitudes more sheep to get shorn. How?
For one thing, retail brokers are able to command top dollar from market-making firms who pay the brokers for the opportunity to take the other side of retail trades. This is called Payment for Order Flow (PFOF).
This is a major development in the forex market. And when we look under the hood, things are even worse than they appear for the greenback.
With more and more global currencies showing relative strength each day, it’s time to take a look at US dollar internals and see what’s moving.
Relative strength is not just the cheat code for stocks, it also works for the currency market and everything else in between.
We also learn a lot about the breadth of a given market through analyzing internals. This helps us determine how we want to position ourselves to make money.
And right now, it looks like we should position ourselves for a lower dollar over longer time frames.
The following table shows the US dollar is in, or moving toward, a bearish trend regime against most other major currencies.
The worst stocks on the planet. Yes those. They're even buying those.
That's what happens in bull markets.
The CSI 300 is up over 4% overnight. This is the Chinese equivalent to the S&P500, which is now bouncing off support from Q1 and potentially putting in a historic double bottom:
Think about what this could mean to global markets, if even the worst stocks can't go down.
I mean, just look at the returns in China compared to the United States over the past 4 years, taking it back to before the prior cycle's peak.
Using this timeframe, you can really see the lack of recovery in China.
We've had some great trades come out of this small-cap-focused column since we launched it back in 2020 and started rotating it with our flagship bottom-up scan, Under the Hood.
For the first year or so, we focused only on Russell 2000 stocks with a market cap between $1 and $2B.
That was fun, but we wanted to branch out a bit and allow some new stocks to find their way onto our list.
We expanded our universe to include some mid-caps.
Nowadays, to make the cut for our Minor Leaguers list, a company must have a market cap between $1 and $4B.
