The Era of Managed Markets
Shown above is a chart we posted weeks back illustrating the cycle of intervention prior to Federal Reserve meetings. The idea is to show the world things are great and no excessive Fed action is necessary. The Fed’s goal is to use as few bullets -quantitative easy, lowering interest rates, corporate bond purchases, and accommodative language - as possible in each policy statement. However, the intervention does not stop there. Through their Fed members, a handful of select high cap, primarily tech stocks are continually purchased to lift the moving averages of most exchanges higher while the bulk of the stocks in that index lag.
Years back, FANG represented the darlings of the tech industry, but the acronym has since evolved to FAAMG (FB, AAPL, AMZN, MSFT, and GOOG). One can clearly see how minimal the returns from the broad market would be without these leaders. They lift and carry not just the NDX - but also the SPX and to a lesser extent the DOW.
One can see the McClellan Oscillator, which tracks overall market breadth, has turned down while the indexes continue to advance. This is not the sign of an overall healthy, advancing market, but rather a market propped up by a handful of mega tech stocks.
There are periods of the year that historically represent good times for momentum trading of “story stocks." Trading in these stocks has also been amplified by Covid from the vast addition of day-traders opening Robinhood accounts in lockdown. Many gained a false sense of security with the markets, thinking 'this is so easy' and increased leverage and risk. They have and will continue to see the pendulum swing in both directions. As the summer began, the breadth of the overall market began to turn and story stocks became bad stories. We expect this trend to continue into year end with just a handful of stocks carrying the load. So what can one do? Below we have a list of a few ETF’s that can concentrate fire power to capitalize on this trend.
GOOGL and GOOG: 7.96%
GOOGL and GOOG: 7.60%
ETF: TQQQ 2x levered of QQQ for shorter term day and swing trading. In closing, institutional money does not trust the economy, Covid, US government, nor the overvalued US stock markets. However, they need to continue to deploy capital to find alpha for themselves and the money they manage. Moreover, the stakes of keeping the country from slipping into a depression from Covid depends on the stock market maintaining its rich valuation. If you think things are bad now, they would be ten times worse if US stock markets were in ruins and the Fed will use all of its firepower to prevent this from happening. Bottom line, look for Wall Street to continue reducing risk by purchasing the strongest mega cap tech names. HFZ Financial Disclosures All opinions, information and illustrations expressed are solely for information and educational purposes and do not constitute investment or trading advice. We bear no responsibility for any actions taken or not taken by third parties after reading the blog. This email content has no regard to your own investment objectives, financial situation or particular needs. We may have an interest and may make purchases, sales or short sales in the securities referred to in the financial educational platform blog. Please ask for our consent before re-publishing blog content. Investing in the financial markets can involve considerable risk, including loss of principal. Past performance is not necessarily an indication of future performance. Actual clients may achieve results materially different from the results portrayed. All material is for informational and educational purposes only and is not investment advice and is not meant to suggest that any securities are suitable investments for any particular investor. All information reflects our own actions, beliefs, and processes for purely informational purposes. Hedge Fund Z LLC is a financial blog for the sole purpose of information. HFZ does not represent themselves as acting in the position of an investment advisor or investment manager for funds that are not under their direct control and fiduciary responsibility. Third party quotes and information may not be representative of the experience of HFZ customers and do not represent a guarantee of future performance or success. Many of the results displayed on our website were achieved using leverage, such as 2x or 3x leveraged ETF's or equity options. The information included at HFZ and HFZ writing, research, and updates is prepared for educational purposes and is not a solicitation, or an offer to buy or sell any security or use any particular system. Information is based on historical research using data believed to be reliable, but there is no guarantee as to its accuracy. HFZ does not represent themselves as acting in the position of an investment adviser, bank or investment manager for funds that are not under their direct control and fiduciary responsibility. HFZ will not provide you with personally tailored advice concerning the nature, potential, value or suitability of any particular security, portfolio or securities, transaction, investment strategy or other matter. No information, nor any opinion expressed on the Site or in the Services, shall constitute a solicitation or an offer to buy or sell any securities mentioned therein. The information presented on the Site and in the Services has been prepared without regard to any particular investor's investment objectives, financial situation, needs, capacity, and trading ability or experience. Accordingly, you should not act on any information on the Site or in the Services without obtaining specific advice from your financial advisors and should not rely on information herein as the basis for your trading and/or investment decisions. HFZ cannot claim or represent that any of our Services are suitable for you. By your use of the Site and Services, you're agreeing that you bear responsibility for your own investment research, trades, and investment decisions. Only you can decide whether or not a trade is right for you and you agree to be liable for any trades you initiate at your brokerage using research and/or tools that we provide. If you ignore our advice to do independent research and choose instead to trade solely on information, analysis, alerts or opinions found in our Service or website, you have made a conscious, willing, free, and personal decision to do so. You also agree that HFZ, its directors, its employees, subsidiaries, affiliates, and its agents will not be liable for any investment decision, trade made or action taken by you and others based on news, information, opinion, or any other material published through our Site and Services. Hedge Fund Z Terms and Conditions