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TPA Analytics: Digging Through The Trash. What To Keep & Throw Away

By Jeffrey Marcus | April 8, 2020

Jeffrey Marcus is the President of Turning Point Analytics. Turning Point Analytics utilizes a time-tested, real world strategy that optimizes client’s entry and exit points and adds alpha. TPA defines each stock as Trend or Range to identify actionable inflection points. For more information on TPA check out: http://www.TurningPointAnalyticsllc.com


, TPA Analytics: Digging Through The Trash. What To Keep & Throw Away

During the 35% decline the U.S. stock market from 2/19/20 to 3/23/20, there were obvious themes that seemed to make sense, given the specific threats that Covid-19 presented to the public and to businesses as people’s activities were restricted and their incomes put in jeopardy.  Energy, Consumer Retail, Hotels, Airlines, Department Stores, Restaurants, Cruise Lines did particularly badly for obvious reasons.  The best performers were Staples, Healthcare, and Telecomm.  Internet, Biotech, General Merchandise Stores, and Shipping companies did well since these are where money flowed given the nature of the crisis.

In addition, as the market declined, the Nasdaq 100 outperformed the Dow Jones 30 (DJIA) by a considerable margin.  The relative performance chart below shows that the Nasdaq 100 outperformed the Dow by 9% in 23 days.  Looking at the constituents of each index (see table below), it can be argued that the nature of the Pandemic put the businesses of the DJIA at more risk than those of the NDX, which is probably why they underperformed from 2/19 to 3/23.  Chart 2 shows that off of the 3/23 low, the opposite has occurred; the Dow has outperformed the Nasdaq 100 by about 7%.  TPA would argue that the action from the 3/23 low is the result of investors just buying the most beaten down stocks, THE TRASH, versus buying companies that are poised to do well during the remainder of the crisis.

In fact, looking technically at the ratio of the NDX/DJIA (chart 3) one can see that the ratio broke out well before the crisis, in October 2019, and is in a strong uptrend.  The zoom chart of the ratio NDX/DJIA shows that the recent decline, NDX underperforming versus the DJIA, merely puts the ratio back at support from its 20 DMA.  The 20DMA has been support and marked the rally in NDX/DJIA since the October breakout.  TPA sees NDX continuing the longer term pattern of outperforming its older brother; the DJIA. (Along with this reasoning is the new Covid-19 data, which questions the recent optimism about the trend of the pandemic – see charts at the very bottom of this report from World meters and John Hopkins).

RELATIVE PERFORMANCE NDX, DJIA – 2/19/20 TO 3/23/20

, TPA Analytics: Digging Through The Trash. What To Keep & Throw Away

RELATIVE PERFORMANCE NDX, DJIA  – 3/23/20 TO 4/7/20, TPA Analytics: Digging Through The Trash. What To Keep & Throw Away

DJIA                                                                                   NDX

, TPA Analytics: Digging Through The Trash. What To Keep & Throw Away

, TPA Analytics: Digging Through The Trash. What To Keep & Throw Away

RATIO OF NDX/DJIA – 2018-2020

, TPA Analytics: Digging Through The Trash. What To Keep & Throw Away

RATIO OF NDX/DJIA – 2019-2020

, TPA Analytics: Digging Through The Trash. What To Keep & Throw Away

The table at the bottom of this report shows the performance from 2/19 to 3/23 and from 3/23 to yesterday (4/7) of the major U.S Sectors and the 120+ Subsectors that TPA monitors regularly.  The period performances are ranked and color coded.  Finally, the difference in rank between the 2/19 to 3/23 period and the 3/23 to 4/7 period is calculated in the final column and ranked.  If the sector or subsector improved in performance rank, the change is positive.  If the sector or subsector dropped in rank, the change is negative.

TPA points to 4 categories which will guide clients in terms of what to buy and what to avoid going forward.  Areas that:

  1. Outperformed during downturn. Underperformed during rally.  Now, should outperform.
  2. Underperformed during downturn. Outperformed during rally.  Now, should underperform.
  3. Underperformed during downturn. Underperformed during rally.  Now, should underperform.

IN OTHER WORDS, THERE ARE AREAS THAT

(1) Rallied at first and who’s recent sell off was unwarranted

  • Staples
  • TECH
  • Pharma
  • Life Sciences
  • Biotech
  • Internet Retail
  • Airfreight & Logistics
  • General Merchandise

(2) Declined more at first and whose rallies were unwarranted

  • Industrials
  • Financials
  • Leisure Products
  • Apparel Retail
  • Department Stores
  • Investment Banks
  • Industrial Machinery
  • Auto

(3) Declined more, have failed to recover, and deserve to be down

  • Hotels
  • Airlines
  • Auto Parts
  • Regional Banks
  • O&G Drillers
  • Casino & Gaming

, TPA Analytics: Digging Through The Trash. What To Keep & Throw Away , TPA Analytics: Digging Through The Trash. What To Keep & Throw Away , TPA Analytics: Digging Through The Trash. What To Keep & Throw Away


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Jeff Marcus founded Turning Point Analytics (TPA) in 2009 after 25 years on trading desks and 13 years as a head trader to provide strategic and technical research to institutional clients. Turning Point Analytics (TPA) provides a unique strategy that works as an overlay to clients’ good fundamental analysis. After 10 years of serving only large institutions, TPA now offers its research services to mid and small managers, RIA’s, and wealthy sophisticated individuals looking for a way to increase their returns and outperform their peers.

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2020/04/08
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