overview
Let us first begin by explaining the title. 19th February 2021 marks the first-year anniversary since the peak of the stock market prior to the throat-cutting Covid-19 sell down. That was the day the world began to worry about the coronavirus that started in Wuhan and subsequently the rest of China, before proceeding to infiltrate the rest of the world. And perhaps that’s an anniversary we’d all like to forget.
The second part of the title is perhaps the main essence of this article. Most investors and traders would probably only remember the unprecedented, fastest 40% drop in the stock market’s history. And perhaps, also the much hated and unbelievable V-shaped rally since March 2020 to date. The speed of the 40% market drop is one for the history books – for sure.
But what if we told you there is more? And that brings us to the second part of the title.
Never in the history of the investment sphere have we seen how quickly leadership positions have changed hands across various asset classes in this past year.
In fact, to even relate today’s topic to seasons does not do justice to what we are about to cover. A year has 4 seasons, a fact we all can unanimously agree upon. How many leadership positions have changed hands in the past year? 6 and frankly, there could be many more.
Let’s begin to tell the story.
TAKEAWAY
- 19th February 2021 marks the first year anniversary since the peak of the stock market prior to the throat cutting Covid-19 sell down.
- Never in the history of the investment sphere have we seen how quickly leadership positions have changed hands across various asset classes in this past year.
- This article will highlight how 6 different asset classes have rallied with market beating returns, and how several of these plays have given back some of these significant returns.
- Find out the potential upcoming investment and trading themes as we progress along in 2021.
- Find out how our TraderGPS system has helped many of our community members in identifying and managing their trades in this seemingly rewarding but volatile market.
1st Flavour of the Moment - Gold
When markets are in turmoil, it is often very hard to find products to invest in. What would have been even more challenging post-Covid selldown recovery would be to know when to exit.
Gold was probably a fairly obvious asset to buy in 2021. Well-known for its safe haven status, Gold certainly proved its mettle having raised 29% since 19th February 2020 to its peak on 7th August 2020.
What could be very frustrating for gold investors now is how quickly it has fallen out of favour since its 7th August 2020 peak. As of 19th February 2021, Gold has lost almost -15%.
The funny thing is we aren’t even completely over Covid-19 yet.
2nd Flavour of the Moment - Stay at Home stocks
When the world gradually began to realise there was an urgent need to work from home to contain the virus spread, only a handful of businesses were primed to take advantage of the global lockdown and restrictions.
Technology stocks were the key enablers for us to be effective in working from home. Communication tools like Zoom saw widespread adoption. People started to embrace e-commerce. Previously obscure businesses like Peleton selling home fitness equipment were now highly sought after.
Stocks like Zoom rallied hard all the way to October 2020, gaining a whooping 494% before giving -44% of it back. Despite that, Zoom is still growing and generating sales at an increasing clip.
While many have said Zoom’s valuation had gotten ahead of itself, which is true, it is also true that stocks like Zoom fell out of favour in a short 8 months.
3rd Flavour of the Moment - China (and still ongoing)
China stocks are interesting. The first to highlight is that the China selldown occurred way earlier on 14th January 2020, and dropped -22% before bottoming out on 19th March 2020.
Since then, the China A50 has been on a one-way upward trend and is still ongoing.
In our 2021 market outlook special edition, we highlighted that countries like China that have a significant domestic market and demonstrated good Covid-19 containment, would most likely do very well as the rest of the world appeared to be less effective at containing the virus.
It appears the chinese stock market has moved in line with our expectations. So what’s next?
How well the Chinese stock market will do for the remainder of 2021 will be largely dependent on the speed at which the rest of the world contains Covid-19 or administers sufficient vaccines amongst the general population. During such times, we may start to see fund rotations out of the Chinese stock market into countries that are still badly affected by the coronavirus.
4th Flavour of the Moment - Small Caps and SPACs (and still ongoing)
Since mid-October 2020, the economy has been flush with liquidity through fiscal and monetary stimulus. In addition, with growing confidence in beating Covid-19, this has resulted in a sentiment shift.
What resulted was a shift away from safe haven assets like Gold and overvalued ‘work from home’ stocks to more speculative and higher risk asset classes such as Small Caps, SPACs plays and micro Caps.
We also started to see more retail participation in the stock market, which fundamentally changed the tune of the markets since Q4 2020 to date. This additional contribution by retail traders provided further buoyancy to the already bullish participation sustained by big institutional players and major fund flows.
The general theme at the moment is ‘yield-chasing’ in preference of risks. This means that the net aggregate opinion of all market participants appears to be willing to endure higher risks for higher returns through more capital flow into micro, small cap stocks and speculative SPAC plays.
A word of caution – with higher bond yield, this will likely result in some dampening effects on higher risk stock asset classes, as smaller and riskier stocks face higher borrowing interest rates compared to its safer blue chip peers. Investors and traders currently active in high and risky growth stocks should keep a watchful eye on bond yield developments.
5th Flavour of the Moment - Cryptocurrencies (still ongoing)
This next asset class probably needs little introduction as the likes of Bitcoin and other cryptocurrencies are all over the online media.
What is important for all our readers to know are the following:
1
The rise of Bitcoin and other crypto-currenices before their previous peak in 2017 were mostly driven by speculative retail participation.
2
Institutional and big fund players were mostly on the side lines.
3
Bitcoin only broke out of its previous $20k peak in December 2020 due to bottoms up retail participation.
4
Bitcoin sentiment has now fundamentally changed. Innovative companies like Square and Tesla have bought Bitcoin to have them in their balance sheet. Major institutions and funds are also beginning to join the bandwagon.
The big player participation in Bitcoin and other major cryptocurrencies is purported by many to be just the beginning. It may very well be the case to expect further tailwinds in this space.
A word of caution remains that cryptocurrencies are still high risk assets, and furthermore as more established companies and institutional funds buy bigger chunks of the digital coin to chuck into their balance sheets, the available supply of Bitcoin in the open market will decrease. While it will likely drive the price of Bitcoin up further, the dwindling supply of Bitcoin will also correspondingly increase the magnitude of drawdowns when these big players take profits via large volume transactions in an otherwise small supply marketplace.
6th Flavour of the Moment - High Short Interest Stocks
The final and perhaps most fickle play of the past year’s anniversary goes to GameStop and AMC.
We covered this phenomena in detail in our previous article “A Case of Robin Hood unfolding in the Stock Market”.
The extreme interest in high short interest stocks like GameStop and AMC went away as quickly as it came on, with both stocks gaining as high as 800+% in a few days only to give most of it back in 2 weeks!
This certainly did not bode well for Tencent and Alibaba, as Alibaba which had (and still have) their own issues with the Chinese regulators.
The better news is Beijing will be caught between a rock and a hard place, especially when they feel the need to defend their own against a Washington attack, and may not act expeditiously against Alibaba and Ant Group.
Several Upcoming Flavours to Expect
Reopening Theme
The economy reopening theme is likely to play out in the next few months as more and more people receive vaccinations and confidence will start to grow in areas of tourism and hospitality.
Our flagship Tri-X robot has perhaps picked up on this re-opening theme and have successfully capitalised on several opportunities:
The market is efficient most of the time, and market participants make assessments on stock prices based on all past, current and expected (future) stock related news and information.
Based on information on hand, we can probably say the following has been taken into account with regard to the current Alibaba price:
- Marriott (MAR)
- Hilton Worldwide Holdings Inc (HLT)
The extreme interest in high short interest stocks like GameStop and AMC went away as quickly as it came on, with both stocks gaining as high as 800+% in a few days only to give most of it back in 2 weeks!
Infrastructure Investments
Joe Biden recently discussed infrastructure with top labour leaders and had this to say “We rank something like 38th in the world in terms of our infrastructure – everything from canals to highways to airports”. He has plans to modernise U.S. infrastructure to boost the U.S. economy and create millions of paid jobs.
To find out how our TradersGPS screener system has helped our AlgoMerchant community in identifying several potential plays in infrastructure, join our “Traders and Investors Facebook Community” and check out the following post:
- Perma-Pipe International Holdings Inc(NASDAQ: PPIH)
BioScience and Medical
Technological advancements are making huge strides, and we are now seeing the advent of tremendous innovations in the areas of Bioscience and medical treatment. This space is expected to grow tremendously in the next few decades.
Once again, our TraderGPS system has helped our community of active traders identify potential plays in BioScience and Medical industries. Join our “Traders and Investors Facebook Community” and check out the following posts:
- Kala Pharmaceuticals, Inc. (KALA)
- TransMedics Group, Inc. (TMDX)
3D Printing
ARK Invest recently shared in their 2021 Big Ideas that for 3D Printing “ARK believes 3D printing will revolutionize manufacturing, growing at an annual rate of roughly 60% from $12 billion last year to $120 billion in 2025.”
Our TraderGPS system has helped our community of active traders identify potential plays in 3D Printing. Join our “Traders and Investors Facebook Community” and check out the following posts:
- Nano Dimension Ltd. (NNDM)
Conclusion
It is important for our AlgoMerchant community to know that the news and social media have reported many triple digit returns opportunities within a short span of days to several months.
These are all true – there is no denying these facts. GameStop and AMC both had 800% returns in days, whereas the likes of Bitcoin and stay at home stocks like Zoom took several months to achieve such returns.
However, let us also not forget that the investing market appears to be increasingly fickle in 2 key areas:
- Traders are tending towards higher and more speculative asset classes
- Durations of when these market beating returns will play out is becoming increasingly shorter
We have many astute traders in our community with perhaps appetite for higher returns and therefore higher risks. Learn how our TraderGPS system can help you find early entry signals and also credible exit signals for bullish, trending stocks. In essence, our TraderGPS system can help you manage your risks and protect your profits.
For those that find it difficult to navigate the increasingly fickle and challenging stock markets, we have suitable products that provide our subscribers with market exposure and more importantly, will take away the burden of making difficult trading decisions!
You may contact support@algomerchant.com to find out more about our A.I. solutions and trading tools today!
