Call me a young naïve trader drunk on a bull market, but I don't think it's necessary in today's world to blow up in order to learn.
Hear me out.
Back in the '90s and early 2000s, you read a book and experimented with your account through trial and error. But today, we have widespread democratization of financial information that just wasn't around back then.
Given that this new generation of traders have endless routes of online resources and a completely transformed avenue of education, I don't think there's any real need for that.
Those who've been cynical on this trend have been dead wrong.
Retail has been the big winner.
The hedge funds got Tesla wrong. When TSLA didn't meet their standardized Wall Street mold, they didn't give a second look and proceeded to miss one of the best trades of the last few years.
And what about Bitcoin? It was retail that got to the party early on that one, too. For a symbolic change, you had the institutions chasing retail, not the other way around.
As our Premium Members already know, we have a laundry list of scans that we run internally on an almost daily basis.
Different market environments, naturally, are more conducive to certain scans and less so to others.
For example, running our "Short Scan" right now is an absolute waste of time (which in itself is information about the current state of the market). On the other hand, our "Minor Leaguers" is perfect for the current environment due to its focus on Small-Cap stocks.
Our "Squeeze Scan" is also absolute gold for the current market. While Gamestop $GME is stealing all the thunder these days, it's not the only stock being propelled higher by short covering. It's happening more or less across the board in the most shorted names.
In fact, if you were to treat these hated stocks as a basket, they'd be outperforming even the strongest industry groups right now.
I think we can all agree that we learned something this week.
No matter who you are or how long you've been at this, we all learned SOMETHING after this week's events.
Some investors learned about short selling and short squeezes (my wife, for example). Others now have a better understanding of how brokers work and the fact that pretty much all of them sell their order flow. None of this is anything new to us, of course, but it is to a lot of other people.
I personally learned more about some of the Dodd Frank regulations, almost by osmosis. I mean, how could you not? But I realized that I officially care less about all that stuff than I did before. Talk about boring!
Anyway, the funniest part of the whole thing has to be the people screaming for more investor education to prevent this irrational behavior in the future. "We have to protect investors from themselves", "Brokers need to educate their clients"....etc etc
This is hilarious. They think that making people take some tests or answer questions is going to stop them from making reckless decisions????
From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts
The market is giving us absolutely no reason to play defense right now.
Regardless of the asset class, it's the risk-takers that are having their way in this environment.
Investors stretching out along the risk spectrum is a point we've been hammering home for some time now, particularly in our weekly RPP Reports - like this one.
Not only is this true on absolute terms, but we're also witnessing cross-asset relationships progress higher and in favor of risk-asset which can only be taken as a positive.
It's not often we see all asset classes in agreement with each other, but when we do, it's a significant driving force that supports the risk-on trade and suggests higher prices to come.
Earlier this week, the All Star Charts research team did a deep dive on China stocks. Say what you will about the political tension between our two countries, we speculators only care about where money can be made. And when it comes to China, using options to define our risks makes so much sense here.
One of the stocks highlighted is in the hot electronic vehicles space that has me interested.
Our most recent Under The Hood report was packed with a handful of buying opportunities. As usual, these names are all exhibiting bullish relative strength and offering investors well-defined risk levels to trade against... and of course, reward profiles skewed heavily in our favor.
In an environment like this one... where areas far and wide are making new highs, and even the weakest corners of the market are participating, there is no shortageof strong stocks floating to the top of our bottoms-up scans.
In recent months, this column (as well as the Minor Leaguers) has been dominated by smaller-cap names as SMIDs and Micro-Caps have been where all the buzz is among investors these days due to their aggressive outperformance.
This week Howard and I talk about the short squeezes happening in this market. We've seen it in GameStop $GME, Blackberry $BB and AMC Theatres $AMC. Are more of them coming? Why should investors care?
How about the Speaker of the House of Representatives Nancy Pelosi trading Tesla Call Options. Should we complain about her trading habits, or do we use that as information? In other words, what does she know that the rest of us don't, that drove her to invest in so many options contracts?
Are you on Clubhouse? Is this the new Social Media App that everyone will be on? For questions like these, I always turn to Howard Lindzon.
We cover all that and so much more in the latest episode of Happy Hour w/ Traders:
Years ago, early in our marriage, my wife and I went to a car dealership with her dad to make one of those all important, young couple purchases: a new car.
While my wife and her father were chatting with the salesman, I was all over the car pushing every button, pulling every lever and opening every compartment. I wanted to know what was what, where things were, and how it all fit together. The three of them were a bit taken aback as I moved from the front seat to the back, methodically finding knobs and uncovering compartments that the salesman didn’t even know existed.
Our marriage survived that episode and I've got a great relationship with my father-in-law but we didn't buy the car.
I am a tinkerer by nature. My dad once rebuilt a motorcycle engine in the living room of the small apartment he shared with my mom shortly after they were married. The point is, I like to know how things work. I'm not afraid to pull something apart, look at the insides, and then put it back together. I always use all the screws and only rarely does a spring or ball bearing go missing.
Something we’ve been working on internally this year is using various bottoms-up tools and scans to complement our top-down approach. One way we’re doing this is by identifying 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.
Things are getting crazy out there. But this post isn't going to be about all the deadwood companies whose stocks are getting short squeezed. I'm looking at some of the biggest names showing signs of breaking out and this is something investors should not ignore. We got into Google (Alphabet) recently, and this might be a double-down of sorts, but now we're eyeing another mega cap.
