Momentum Monday – Is Small The New Big?

As a reminder, Marketsmith (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from Marketsmith. They are offering my readers a three week trial for $19.95. Click this link if you would like to try it out.

It’s Monday and though the markets are closed, Ivanhoff and I never stop bringing you Momentum Monday. Ivanhoff and I tour the markets and share some fresh ideas.

You can listen/watch today’s show here on Youtube and the show is embedded below:

There is a lot going on in the markets, but my attention is on the change of trend that might be underway with small caps and large caps. Eddy sums it up best with this chart and set of tweets:

Also, The big cap tech – Facebook, Apple et al are now underperforming the resrt of the Nasdaq 100:

The one stock and company that has surprised me most is Goldman Sachs which has broken out to new all-time highs. The suits are having a day.

The other big surprise in looking at the charts is gold’s relative weakness to the other commodities which are all rallying. The gold bugs are miserable seeing their rock get digitized and blockchained before paper and Goldman.

Ivanhoff sums up the action this way:

The two big catalysts in the past couple of months that have defined everything in the stocks market are:

1. The U.S. election results – clean energy stocks accelerated their ascent since then. Cannabis stocks gapped up and have been clear leaders. Semiconductors and biotech have also been extremely strong post the elections for their own unpolitical reasons. The odds are that those sectors will continue to lead in 2021 but that doesn’t mean chase them when they are up multiple days in a row. Wait for proper setups that create better risk/reward entry points – pullbacks to rising 20 day moving average or a range contraction.
2. The announcement of a working COVID vaccine – after Pfizer and Moderna revealed their vaccines, retailers, financials, and energy gapped up and have been among the leaders since then. Basically, they are the reasons the small-cap ETFs have done so well. Russel 2000 (IWM) doubled in 9 months since its March 2020 lows. To see a move of this magnitude, you have to go back all the way to 2009 when it took IIWM 14 months to double from its lows. Nothing goes up with such veracity in such a short period of time without having reactions along the way. Don’t be surprised to see 10-20% pullbacks in the indexes in 2021, but overall I expect those pullbacks (corrections) to be buying opportunities.

In the meantime, mega-cap stocks and many software stocks have pulled back or just moved sideways consolidating their gains from the first half of the year. I expected some of them to have strong pre-earnings rallies (AMZN, NFLX) considering their reports in the previous quarter but so far I have been wrong on that. The new earnings season officially starts next week with NFLX and a bunch of financials. After that, we have the big tech and everyone else.

Have a great week everyone.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For full disclosures, click here