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TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

By Jeffrey Marcus | October 2, 2020

FOURTH MARKET PHASE OF THE PANDEMIC SHOULD BE FOCUSED ON RECOVERY- A SECTOR ANALYSIS

TPA believes we have entered the 4th market stage of the Pandemic. The fourth market phase of the pandemic should be focused on recovery, albeit with one eye on the door at all times. The chart below highlights the 4 stages so far using the Benchmark S&P500, TPA BIGTECH, Nasdaq 100, XRT (even weighted Retail ETF), XLF (Financials ETF), and XLI (Industrials ETF).

First 3-Stages

Covid-19 sell-off (2/19 to 3/23)- the massive March sell-off as the scope of the crisis became more evident. In this stage, all stocks sold off, but eventually, defensive stocks like Staples and Healthcare performed less badly and people also moved toward Megacap TECH for safety.

Picking up the trash (3/23 to 4/8) investors bought the most beaten-up stocks for a bounce.  Once a bottom was established in March, investors bought the most oversold stocks regardless of merit. TPA wrote about this on 4/8 in a report called PICKING UP THE TRASH NOW WHAT TO KEEP AND WHAT TO THROW AWAY. TPA stated 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.  Some of the best performers for a brief time were Energy, Real Estate, and Managed Healthcare. These areas did not continue to perform well.

Looking for Covid-19 winners (4/8 to 9/2) investors bought stocks they believed were either immune to or would benefit from the Pandemic.

BIGTECH Ruled

BIGTECH outperformed as people shopped from home and used electronics versus moving about to work and live. TPA continually told investors to stick with BIGTECH and that paid off handsomely (BIGTECH was up 65% from 4/8 to 9/2; more than twice the S&P500 performance in that period).

People focused on their homes since they were spending 100% of their time there and may have had more people in their houses. Furniture, Retail Computers and Electronics, Home Improvement, and Software were top performers.

Internet retail thrived as shopping was done remotely.

Home Builders saw gains as people started the exodus from cities to suburban and rural areas. This means a transition from renting to buying in an already tight housing market. TPA wrote about this all the way back on 3/12 in the World Snapshot that stated that why the current crisis will not stall [housing] prices. Since there are fewer rentals away from cities, that may also increase demand for buying single-family houses. This unforeseen demand may keep demand for homes high and prices moving higher.

Phase-4 Recovery

Looking forward to recovery (since 9/2) -Now that new cases have come under control, work is well underway to find a vaccine and develop cures, and some parts of life have restarted, investors have begun to look at which sectors and subsectors will benefit from a recovery.  This means a move away from stocks and subsectors that merely provide a safe-haven and toward companies that are at attractive valuations and well-positioned to perform in a recovery.

PANDEMICS 4 MARKET PHASES

Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

The table below looks at the performance of 12 major sectors (and BIGTECH), 7 broad market categories, 108 subsectors, and 6 major global markets in the 4 periods mentioned above. The performance of each index is provided and ranked versus its respective group. TPA believes clients should focus more on those areas that have performed well since 9/2/20. Attractive areas should be:

  • Not overbought
  • Not part of a crowded trade
  • Able to benefit from a recovery

Clients should focus on stocks:

  • In subsectors that have outperformed since 9/2 (best rank in the most recent period) and
  • Subsectors that TPA has marked as technically positive

Clients should avoid or be wary of stocks that:

  • Have underperformed since 9/2 and
  • Are technically negative

2-Caveats To The Analysis

It will probably be a messy transition as investors reduce holdings in BIGTECH. There is nothing wrong with the stocks in BIGTECH, but it is now a very crowded trade. TPA has repeatedly told clients that BIGTECH (the top 8 stocks in the NDX) make up 29% of the S&P500 market cap. Obviously, selling in BIGTECH will weigh on the benchmark S&P500 at first. The stocks that investors will transition to have less weight in the indexes, so selling BIGTECH and buying a large swath of other stocks will have a varying effect on the S&P500.

Keep one eye on the door, because if new cases spike and there is a second wave, clients may have to get defensive again.

Charts of the individual market phases are provided at the end of this report.

Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

2/19/20 -3/23/20

Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

3/23/20 4/8/20

Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

4/8/20 -9/2/20

Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

Since 9/2/20

Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery


TECHNICAL INDICATOR EXPLANATIONS:

ASCENDING – DESCENDING TRIANGLE

BASING-TOPPING-CONSOLIDATION

BREAKOUT (Breakdown)

CHANNEL & RANGE

DIRECTIONAL MOVEMENT INDEX (DMI)

DOUBLE BOTTOM or DOUBLE TOP

MACD-MOVING AVERAGE CONVERGENCE-DIVERGENCE

MOVING AVERAGES

RELATIVE STRENGTH & PEER STOCK PERFORMANCE

REPEATING PATTERNS

RSI-RELATIVE_STRENGTH

SUPPORT, RESISTANCE, BREAKOUT, BREAKDOWN

TREND


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Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

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Fourth Phase Recovery, TPA Analytics: Fourth Phase Of Pandemic, Focus On Recovery

Turning Point Analytics utilizes a time-tested, real-world strategy that optimizes the clients entry and exit points and adds alpha. TPA defines each stock as Trend or Range to identify actionable inflection points.


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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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2020/10/02
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