Month: August 2021

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Bull markets correct thorough sector rotations. While one group of sectors is pulling back, another rises until the roles reverse. This has been the market pattern for most of this year so far. When the market was worried about inflation, the small caps went up while tech pulled back. When the market was worried about Covid and deflation, capital went into tech stocks while small caps were under pressure. Last week, we saw a little bit of both. First tech and other Covid-related stocks rallied. Then, later in the week, interest rates perked up boosting financials and industrial metals.

In the meantime, crypto-trading is hot again. Ethereum has rallied 75% in three weeks spurring speculations in smaller cryptocurrencies and crypto-related stocks like MSTR, SI, MARA, RIOT.

Gene editing stocks have shown notable relative strength as of late – EDIT, NTLA, CRSP, FATE, BEAM.

Market breadth has been lacking with more names selling off than rallying. This can change if the small-cap ETF – Russell 2k rallies above its 50-day moving average near 225. It’s actually setting up. If financials continue their rally, IWM is likely to break out. 

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The charts in this video are powered by MarketSmith

Vaccine stocks (MRNA and BNTX) are still lingering near all-time highs. Masks (HON, APT, LAKE) and testing stocks (HOLX, TMO, ABT, QDEL, DGX) are perking up. Airlines, cruise ship stocks are under pressure. In other words, the market is still worried about COVID. New cases have risen 10 fold in the past two weeks (from a low base). The question is if there will be a jump in hospitalizations and deaths and if there will be further restrictions. Covid is likely to remain in the headlines for the foreseeable future. I don’t think it will bring a substantial market pullback. The markets rarely correct for the same reason twice, especially back to back. If there’s a correction, it’ll likely take the form of sector rotation – either back in tech stocks or in small caps because of further stimulus.

Speaking of stimulus, Congress is close to passing an infrastructure bill. I don’t know how much of it is already discounted but steel and other industrial metal stocks have been perking up in expectations and many are looking constructively – CLF, X, AA, FCX, XME, etc. There was talk that the infrastructure bill might include spending on clean energy which explains the recent strength in solar, EV, charging stations, etc. – PBW, TAN, BLNK, CHPT, TSLA, etc.

Looking at all major sector and industry ETFs, the semiconductor ETFs – SMH and SOXX, are currently looking the most attractive on the long side. Both are setting up for a potential breakout.

In the meantime, earnings season is still in full effect. Big Tech has already reported. All of them – AAPL, AMZN, FB, GOOGL, MSFT, had around a 10% rally ahead of their earnings as the market was anticipating record numbers. The market was correct. Most of the big ones pulled back after their earnings report. A classic example of buy the rumor, sell the news.

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Here’s a Google spreadsheet tracking all closed options and stock ideas shared on my private Twitter stream and emails for subscribers.

Check out my free weekly email. to get an idea of the content I share with members.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.