You’ll spend 2 years of your life waiting in line.
Skate to where the puck is going, not to where it’s been. – Wayne Gretzky
Many investors, myself included, are waiting to know when this tech/growth selloff will be over. And we’re also waiting, holding multiple stocks that may be down. This spells peak impatience and anxiety for some investors.
Since the reset that happened around the presidential election, things were humming along just fine. The QQQs (the NASDAQ 100 ETF) rallied +25%. There was stock market cheer.
Then came February 12th and with it some stock market schizophrenia:
The QQQs proceeded to drop -10.8% from February 12th until it troughed March 8th.
Then the tech-heavy index staged a huge +12.3% rally to new highs.
Then it promptly fell another -7.3% to its recent 5/12 trough.
Then it surged +3%.
The QQQs now sit +9% higher than the March 8th low.
The problem is this: Many of the outlier stocks with high growth haven’t participated. Let me correct that statement: many of my stocks haven’t… if you’re like me, you’ve been looking at your portfolio saying: “where’s the beef?”
Stocks, however, suddenly seem to be breathing new life in the past few sessions. So, it’s a fair question: Is the growth pummeling over?
I only know one way to get answers and that’s looking at data.
I tell you all the time how the story is really told in the data that lies under the surface. Well sometimes the story is told in the data under that data- like two layers down.
Last week showed signs for possible optimism. But was it real? I had to dig two layers down to find my answer.
Here’s a prime example of what I mean when I say data 2 layers down:
Last week we saw 261 stock buys and 102 stock sells. 71% buys is a strong reading and nice to see. But I wanted to see what else was happening beneath that. Remember, to get a buy signal in our model, not only do you need higher prices on big volume, but stocks also need to pierce a prior high of roughly 3 months. Many of the outlier stocks are far below that high. So, they are not reflected in this table here:
While this table tells us there was heavy buying in Materials and Energy stocks it only tells part of the story. This table shows us 363 stock signals. Let me remind you, Big Money activity breaks down in two ways: Big Money Signals and (refined from that pool) Big Money Buy or Sell Signals. This table is the latter. Big Money Signals are stocks trading in a big way but not breaking out or breaking down.
Looking at last week’s stocks and ignoring buys and sells, I saw 2,800 stocks that traded in a big way. 560 per day is right around average. With the QQQs finishing the week flat form the week before, what can we understand from these 2800 stocks?
I collected all of them. I then filtered for stocks that score well on my ranking system for strong fundamentals. I looked for stocks with strong 3-year sales and earnings growth. I was left with 686 stocks having high growth. Of those, 349 were positive for the week, gaining an average of +4.6%.
That means 12.5% of all Big Money Signals last week were growth stocks getting bought. They broke down like this:
Let’s look at this in another light by comparing last week’s second level data to the past few months. I mentioned that tech stocks peaked February 12th. So, I went and looked at all buy and sell signals since then and there were 5,109 of them. Of those, 1,302 were sells… or 25%.
Of those 1302 sells, there were 349 high-growth stocks getting bought last week but not yet high enough to make a signal. Put simply, 27% of all the stocks making sell signals since 2/12/21 were trading higher on big volume last week… and they were growth companies.
It’s one thing to look at indexes staging what looks like a relief rally and breathe a sigh of relief. It’s another thing altogether to dig two layers deep and find out that the stock market’s abuse victims since February are visibly getting some much-needed love.
It may be too early to tell if the growth bloodletting is over, but there are data-driven positive signs to get excited about.
Last thing: remember I said in order to make a buy signal stocks need to pierce above a roughly 3-month high. 11 weeks ago today was March 8th. That was the low for the QQQs.
That means it will be easier for resurging growth stocks to make buy signals in upcoming days and weeks.
By studying the market’s history and its patterns, we can start to formulate views on where things are going. Data since February has been ugly for growth stocks. But recent data is showing signs of promise and a potential reprieve. I intend to use this data to try and see where things are going.
Wayne Gretzky is perhaps the greatest athlete of all-time. He said it best: “skate to where the puck is going, not to where it’s been.”
Here’s the bottom line
Growth stocks are doing better recently. We think there could be higher levels in store in the near-term.
Disclosure: the author holds no position in QQQ at the time of publication.
Learn more about the MAPsignals process here: www.mapsignals.com
This article was originally posted on FX Empire