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.
Three days off the highs for the S&P 500 and twitter traders are acting like the sky is falling. And maybe it is? But at times like these, I like to look for opportunities to fade what often prove to be short-lived spikes in volatility.
And the best way I know how to do this is to look at sector ETFs and observe the ones displaying the highest relative implied volatilities.
Key takeaway: A peak within the NASDAQ (or the Technology sector) shows that pockets of speculative excesses are being unwound. There has been enough strength in the market elsewhere, as well as a still favorable earnings and economic data backdrop, to keep investors generally optimistic. In March, market volatility allowed optimism to retreat from excessive levels but not completely unwind. We may be seeing early indications that the current bout of volatility will have a more substantial impact on investor psychology. If so, the price reaction will likely not be as benign as was seen two months ago.
Sentiment Report Chart of the Week: Unwinding Speculative Fervor
We've been talking about this for a long time: this year is NOT last year.
The things that worked for the last 3 quarters of 2020 are not working in 2021. Stocks are a mess. Growth is a massive underperformer. Small-caps can't stop churning sideways. Defensive assets stopped going down. Gold is going up. Consumer Staples are outperforming. The nasdaq is the weakest of all the indexes.
None of these things remind me of last year at all.
We discussed all this and more on Yahoo Finance this morning:
From the desk of Steve Strazza @Sstrazza and Ian Culley @Ianculley
Is the US Dollar Index $DXY on the brink of completing a massive reversal pattern to the downside?
As more evidence comes into the picture, it's looking increasingly dire for the dollar. In fact, we're seeing it trend loweracross all timeframes against almost all of its peers.
And this action has only gained steam over the last week as DXY has plunged to fresh multi-month lows.
Dollar weakness has been a nice tailwind for risk assets since its peak in March of last year. Any additional downside pressure in the coming weeks, months, and even quarters would not surprise us... especially if this daunting double-top pattern breaks lower. If and when this happens, further weakness from both a tactical and structural standpoint is exactly the bet we'll be making.
This is a fun one. I got to sit down with Paul Ciana to talk about all things Fixed Income, Commodities and Currencies. Paul is now the Chief Global FICC Technical Strategist and Director of Research at Bank of America Merrill Lynch. But in the early days, him and I used to study for our CMTs together back in 2006.
What's nice about this is that in his current position, and for 10 years at Bloomberg prior to his 5 years at BofA, he's had the opportunity to speak to many of the largest portfolio managers in the world. I want to know what he's learned from all those conversations!
Paul always gives great perspective and as you know, the macro view carries a big weighting throughout our process. So this episode really hit home.
You notice how investors often like to overstay their welcome?
The people throwing the party give them plenty of opportunities to get out. The music stops playing. The food is already gone. The lights even get turned off.
But some people still choose to stay, almost as if they have no where else to go.
And then they sit around wondering what happened?
"Oh, the DJ going home meant the party was over?"
"What do you mean they're not ordering any more food?"
"Who turned out the lights?"
These are what we call "Bag Holders".
They're an important part of the market cycle, because these are the people who are buying all the shares that the rest of us need to sell, so we can head over down the block to the much better party. The one that's just getting going.
In life, you need these sorts of people.
We should not make fun. We should not troll. We need to be thankful.
It's people like this who provide the necessary liquidity for the rest of us to dump our shares on.
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.
The bullish picture still lies as a structural backdrop.
But now, we're seeing mixed signals as many areas have become increasingly vulnerable in recent weeks. This is all taking place as defensive assets have found a footing for the first time in over a year, while risk-on assets approach logical levels of supply.
Recent weakness has been particularly isolated in former leadership groups, like Small-Caps and Growth-heavy areas.
From the desk of Louis Sykes @haumicharts and Steve Strazza @Sstrazza
Alt Season is still very much alive and well.
In February, we did a deep dive into the wide world of crypto assets outside of Bitcoin. This turned out to be quite timely as many of these "alt-coins" have booked significant gains in the time since.
It's no longer just Bitcoin, Ethereum, Litecoin, and some others. There are thousands of cryptocurrencies out there now!
As this new asset class continues to grow and blossom, we continue to pay close attention to the leadership within the Crypto complex.
We've already had some great trades come out of this Small-Cap focused column since we launched it late last year and started rotating it with our flagship bottoms-up scan, "Under The Hood."
Ultimately, to make the cut for our Minor Leagues list, you must have a market cap between $1 and $2B. There are also price and liquidity filters.
Then, we simply sort by proximity to new highs in order to focus on the best players only.
