Category: Uncategorized

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For the better part of 2021 so far, value stocks have outperformed growth stocks. The reason – the market was trying to price inflation not seen since the mid 2000s. As a result, the U.S. Dollar and the U.S. Treasuries took a dive while financials and basic materials skyrocketed. In the meantime, almost anything software or clean-tech related lost 30% to 80% in just a few months. It seems the market was woken up to the possibility that the inflation dangers might have been exaggerated or the fact that the Fed is actually ready to step off the gas. 

Starting about two weeks ago, the whole inflation trade has been unwinding. What went up, pulled back. What was under pressure, has been rallying. Financials (XLF) are now down 9% from their 52week highs, basic materials (XLB) are down 6%, industrial metals (XME) are down 14%, homebuilders (XHB) are down 13%. Meanwhile, software stocks have been reborn. Many of them have been on a 30-40% ramp. Now, the big question is can the Nasdaq Composite continue higher while most non-tech sectors are pressured and already below their 50-day moving average. I think it can. Capital is not leaving the stock market. It is merely rotating between sectors and right now it’s tech’s time to shine. How long this is going to last is anyone’s guess. The market is a fickle machine. One day soon, it might decide to assume the inflation narrative again and start another rotation. There’s no reason to guess when. Price action will leave plenty of clues.

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The Nasdaq 100 and the small-cap index Russell 2000 started the year strong. Then, in mid-February, entered into consolidation building a long multi-month base. While QQQ and IWM were in a range and many momentum stocks from 2020 experienced 50%+ drawdowns, the so-called old-economy stocks – financials, industrials, transportation, basic materials, energy, outperformed significantly – the market tried to manage quickly rising inflation expectations. In the past week or so, the roles began to reverse. It seems financial markets have woken up to the possibility that they might have over-discounted the threat of sizable longer-term inflation and are now backpedalling to correct the excesses. This is nothing new. The markets are often too fast to react to new dangers and opportunities and therefore, swing too far to the upside or the downside. This is what makes trading and investing so interesting, challenging, and exciting at the same time. 

We might have entered a new narrative that is positive for the so-called new economy stocks – software, semis, solar, biotech, medical devices, etc. Growth stocks are setting up and breaking out again, the general price action is bullish and the most appropriate action, for the time being, is to remain long.

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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.

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

The charts in this video are powered by MarketSmith

For a brief moment last week, I thought that the meteoric surge of the so-called meme stocks like AMC, GME, BB, BBBY, DDS, etc. will “break” the market. The last time we saw similar short squeezes in late January of this year, the main indexes had a swift 4-5% pullback. They have held a lot better this time. The QQQ bounced near its 20-day EMA. SPY is close to new all-time highs. Small caps (IWM) are acting constructively. 

We are back in the phase where bad news for the economy is good news for the stock market because it means that the Fed’s injections are not going away. The stock averages had a decent rally last Friday on the back of weaker than expected employment numbers. 

Crude oil and oil stocks had one of their best weeks in years. Major breakouts in the entire space. The oil and gas exploration and production ETF  – XOP, went up 8%.

Steel stocks are holding well and digesting recent gains: CLF, X, STLD, NUE, SID

Car makers are reliving a renaissance. The push towards electric vehicles, the chip shortage, and the change in supply/demand dynamics because of COVID, have been a boon for the shares of Ford, GM, Toyota, and many others. So many new 52-week highs in the space. Chinese EV stocks are also waking up – NIO, LI, etc.

It’s not just inflation-related sectors that are perking up. Tech has stabilized and we are starting to see the emergence of appealing setups. Quite a few semiconductor stocks are setting up for potential breakouts: SMH, AMAT, LRCX, TSM, XLNX, HIMX, UCTT, etc.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing, intraday, and position trade ideas, the Momentum 40 list of market leaders, and much more. See some of the recent testimonials.

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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.