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TPA Analytics: This Rally Is Impossibly Narrow

Written by Jeffrey Marcus | Jul 17, 2020

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Recovery, TPA Analytics: This Rally Is Impossibly Narrow

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Recovery, TPA Analytics: This Rally Is Impossibly Narrow

Recovery, TPA Analytics: This Rally Is Impossibly Narrow

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.


A Rally Based On Hope?

The trading pattern yesterday seemed to resemble the trading pattern of Monday. Both days saw a large rally early on that diminished in the afternoon as large TECH stocks began to suffer. There seemed to be either a battle between the rest of the market and the 2020 out-performers or reallocation from the out-performers to the under-performers. Maybe it was both. The table below bears this pattern out. The performance pattern of the past 5 days seems to have turned the 2020 year to date (YTD) pattern on its head.

Over the past 5 days, the S&P 500 is up 1.79%. As 5-day rallies go, investors should take this happily. Yet, beneath the surface, there is something else happening. TPA calculated the 5-day price change for the worst-performing stocks in the Russell 3000 YTD and discovered they had rallied more than 2 times the S&P 500 over the past 5 days. Stocks in the Russell 3000 that are down 50% or more, 40% or more, and 30% or more YTD were up, on average, 4.31%, 4.22% and 4.43% over the past 5 days, respectively. The losers have become the winners.

Pattern reversal is evident everywhere in the market. The table below shows that the 5-day winners have been Russell 2000 Value stocks, which were up 5.03%. The Russell 2000 Value Index is down 23.52% YTD. The previous stars of 2020, Russell 1000 Growth is actually down 0.25% over the past 5 days. The Russell 1000 Growth Index is up a whopping 9.63% YTD.

The same pattern also shows itself when one examines the S&P 1500 Major Sectors. TECH, which is the strongest sector; up 10.63% YTD, was the worst performer over the past 5 days. On the other side of the coin, four of the worst performing sectors sparkled in the past 5 days. Industrials, Financials, Transports, and Energy, which are down 15.02%, 22.25%, 12.15%, and 37.58% YTD, handily beat the S&P500 over the past 5 days with rallies of 4.42%, 4.34%, 3.894%, and 3.15%, respectively.

Recovery, TPA Analytics: This Rally Is Impossibly Narrow

The gang of winning groups over the past 5 days is populated by the most battered stocks of 2020. Some of the most prevalent 5-day winners are:

  • Aerospace & Defense
  • Airlines
  • Apparel Manufacturers
  • Auto & Truck Parts & Equipment
  • Chemicals-Diversified
  • Commercial Banks
  • Regional Banks
  • Cruise Lines
  • Hotels & Motels
  • Investment Management
  • Life & Health Insurance
  • Oil & Gas
  • Property & Casualty Insurance
  • REITs
  • Retail
  • Restaurants

The question for TPA clients is this: Is the pattern of the past 5 days a broadening of the rally since March 23 or investors moving too far out on the risk curve? In the 5/11/20 World Snapshot, TPA provided the link to Experian’s 4 possible Covid-19 economic scenarios.

The worst scenario was a W-shaped. Yesterday, there were 71,750 new cases of Covid-19 in the U.S. The second worst daily number to date. Although the market seems to have ignored the worsening numbers so far, the V-shaped scenario seems a long-shot at this juncture.

Unless the U.S economy is somehow going to rebound with ever-increasing cases of Covid-19, the action of the past 5 days seems to depend on the hope of this recovery and hope that cheap valuations will be a buffer against tough financial conditions.

TPA would prefer that clients stick to owning the stocks of companies that can either weather or prosper during a pandemic ridden economy instead of hoping that stocks with rocky roads ahead will continue to rally.

Recovery, TPA Analytics: This Rally Is Impossibly Narrow


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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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2020/07/17
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