Welcomeback to our “latest Under The Hood” column for the week ending January 25, 2021. As a reminder, this column will be published bi-weekly moving forward, and rotated on-and-off with our new Minor Leaguers column.
In this column, we analyze the most popular stocks during the week and find opportunities to either join in and ride these momentum names higher, or fade the crowd and bet against them.
We use a variety of sources to generate the list of most popular names. There are so many new data sources available that all we need to do is organize and curate them in a way that shows us exactly what we want: A list of stocks that are seeing an unusual increase in investor interest.
Whether we’re measuring increasing interest based on large institutional purchases, unusual options activity, or simply our proprietary lists of trending tickers… there is a lot of overlap.
The latest E-Trade StreetWise survey, which is put out quarterly, revealed most investors (66%) believe the market is in bubble territory, and another 25% think it’s approaching one.
Check my math, but that's over 90% of investors thinking we're in or near a bubble.
A bubble!
Everything needs to be a bubble.
You see why we can't have nice things?
I mean, what ever happened to a series of higher lows and higher highs defining an uptrend?
Too simple?
Not intellectual enough for you?
Fine. Let's get into facts.
The Dow Jones Industrial Avg and Dow Jones Transportation Avg did nothing for almost 3 years, and just broke out in the 4th quarter last year. Is this a bubble? Or just the beginning of a new uptrend?
When we take a step back, this all jives with what we're seeing in other asset classes as investors are rushing into risk assets as they position themselves more offensively.
This development really began last March as the market was bottoming from its swift Q1 selloff. Although the relative trend really accelerated in early September as Mid, Small, and Micro-Caps began to drastically outperform their Large-Cap peers.
Let's take a look at how this cap-rotation has impacted some of the secular leaders at a sector and industry level.
Chatting with the team this morning, something that stuck out and we all agreed on is that the Megacaps are starting to show signs of re-asserting their dominance. And that it won't be a one-day event. Just look at NFLX, MSFT, AAPL, and the like and you'll likely see what we're seeing.
And the stock that stands out the most to us right now is Google $GOOG.
From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts
New Mystery Chart!
For those new to this exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!
We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.
You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?
Last Friday I sat down with Aaron Task of Seeking Alpha for a fun chat about today's market environment. Aaron and I have known each other for years from his days as the Digital Editor of Fortune as well as Editor-in-Chief of Yahoo! Finance. We also have a lot of friends in common.
It's always interesting talking to someone from the media about how little media I consume. In addition to the benefits of following price, and ignoring the "news", we discuss the current sector and market cap rotation we're seeing, the next direction for Bitcoin and Crypto Currencies, as well some other important tools and strategies that we're incorporating right now.
It's always fun to catch up with Aaron. He just serves me alley-oops.
It's not a secret that Chinese Tech stocks have been breaking out all over the place to new all-time highs. We've been on this for a while. I remember specifically in the depths of the market crash in March last year, Chinese Technology was actually breaking out to new multi-year highs relative to the S&P500. This was happening during the worst part of the crash!
I remember thinking, "What the heck???"
And so they've been ripping ever since. But the market had already tipped its hand.
The difference today is that we're now seeing signs of structural outperformance. It's now Chinese Technology leading the way here bigger picture, no longer U.S. Tech.
Here's the Chinese Tech Index Fund $CQQQ breaking out of a mulit-month base to new all-time highs. You'll also notice how it's breaking out relative to the U.S. $QQQ representing the Nasdaq100 Index:
From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts
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 in order to profit in the weeks and months ahead.
As we mentioned last week, the weight of the evidence overwhelmingly lies in favor of the bulls.
We're seeing rotation supporting this move higher in equities; a sustained bid for SMIDs and Micro-Caps while Large-Cap indexes slowly work higher is all very constructive for the early innings of bull markets.
This environment is also providing bulls with an increasingly wide selection of areas to allocate capital - from Industrials, Technology, and Cylicals, and now Financials.
