To be clear, I don’t care what he said. Instead of hanging on the Fed Chair's words, I prefer to focus on the markets. I find it more enjoyable.
But, boy, did markets respond!
The most striking aspect of yesterday’s reaction was highlighted by the relative strength of growth stocks.
Check out the overlay chart of the US T-Bond ETF $TLT and the ARK Innovation ETF $ARKK: These charts tend to move tick-for-tick, as long-duration assets benefit from the same market environment.
Excluding price action itself, relative strength has to be the most underappreciated indicator.
It's impossible to outperform if you own assets exhibiting relative weakness.
If a stock is underperforming, there's a reason why. It's not until months after the fact do investors discover the "fundamental" drivers anchoring that stock.
The same can be said for when a stock is outperforming.
Look at it like holding a beach ball underwater. You can feel the pressure on your arms, and when that pressure is released, the ball explodes into the air.
Think about the selling pressure in the market: When the selling pressure alleviates, the stocks showing relative strength tend to be the first ones that shoot higher.
These principles are universal across every market.
We retired our "Five Bull Market Barometers" in 2020 to make room for a new weekly post that's focused on the three most important charts for the week ahead.
This is that post, so let's jump into this week's edition.
As many of you know, something we've been working on internally is using various bottom-up tools and scans to complement our top-down approach. It's really been working for us!
One way we're doing this is by identifying 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.
