Quarterly rotation out of Tech and into Small-Mid cap stocks.

6 сент. 2020 г.

Equally weighted S&P 500 (RSP) and IWM had the smallest decline Thursday and Friday compared to other indices. This could signify that the sell-off was mostly over valued tech stocks and not a broader market sell off. Compare this to the price action in June, where RSP and IWM fell significantly, indicating a broad sell off of the S&P 500.

Using this chart, I measured the distance between the Nasdaq and the S&P 500 on June 10, just before the sell off. We can see that there is a 13% variance between the two indices. Compare this to August 12th variance of 21%. Considering that the RSP had a significant decline, we can conclude that there was a broad sell off of small-mid cap stocks and that money was then invested in large cap tech stocks (FANG).

Both of these declines happened in a two-day period but there is a big difference between the percentage lost. If you add up all of the declines in each of the indices, we see total loss for June 10 to be 31.4%. This is much less than that of August 12, which declined only 17.6%.

What is most interesting is when we look at the weighted average of these declines. It is almost exactly inverse! Meaning that in June the Nasdaq decreased the least but in August it decreased the most. The same is true with the Russell decreasing the most in June but the least in August.

I believe that going forward we will see greater percentage gains in IWM compared to the other indices. However, all of this is speculative and subject to change. But if you follow the wave counts for the S&P 500 and Dow you know we need a significant push to complete wave 5. A further decline in these indices would invalidate the wave count and cause significant bearish momentum.

In conclusion, assuming that this recent move was due to rotation I am bullish SPY and IWM and neutral QQQ. We should still see gains in tech but not as much as small to mid cap stocks.

To confirm this analysis, I will assess the weekly gains of each index over the next several weeks. If we do not see an increase in small-mid cap stocks then money is leaving the markets and not being reinvested. This would be very bearish.

8 сент. 2020 г.

Заметка

There is certainly a lot of volatility at the moment. Plan still remains. Ease into some long positions such as financials, IWM and maybe Healthcare (maybe not). I'm long GS, IWM and SPY. Tomorrow I expect target of $325 SPY to be reached before moving up. Good luck!