It was an abysmal week for stocks — leading industries trashed and tossed aside into flaming barrels of trash. But there was rotation, so let’s have a look.
138 stocks with market caps above $5b traded up more than 2% last week. There were some outliers, biotech related news spikes, merger rumors etc. But were there any trends of note?
Of the 138 stocks, here is the breakdown per sector.
Basic Materials: 16
Consumer Goods: 12
Financials: 34
Healthcare: 33
Industrials: 1
Services: 10
Tech: 14
Utility: 18
The best performers were $CYTK, $MRNA, $VTRS, $CIB, $TEVA (TRANS-DRUGS), $MRK, $CRBG, $ALL, $VZ, $TCOM, $IBKR, $BNTX, $GSK, C, $SU, $NVS, $EC, $AMGN, $WRB, $SWAB, $EG, $WYNN
I think it’s fair to say the most boring stocks in America trended up for the first week of January, highlighted by BIG PHARMA and a myriad of low growth banks. We should assume these are temporary placeholders that will be discarded at the first sign of a bounce in risk stocks. I would not lean heavily into this rotation and prefer to long normal stocks with downside hedges. Downside hedges are tricky because gap ups can be sold. In my opinion, the best strategy is to have a balance of longs and shorts that will net out a gain, at which point you should sell everything before 10am.
For example: if you are 100% long, you need to have an additional 30% leverage into $SQQQ or $TZA to be net short. If you have 75% long, 25% inverse ETFs will produce a net short position. You can get lucky if volatility blows out and long $UVIX.
Here are the inverse BETA stats for some bearish ETFs.
$UVXY -5.2
$SOXS -4.9
$FNGD -4.3
$TZA -4.1
$LABD -3.8
$SQQQ -3.5
$FAZ -2.7
$ERY -0.94
If attempting to hedge a portfolio, you want to make sure to avoid outlier events, which is why it’s a bad idea to hedge with industry specific ETFs like $ERY, $FAZ or $LABD. The market can be down 3% and a buyout in a specific industry can completely ruin your hedge, which has happened to me before. In my experience, $SQQQ or $TZA are preferred but in recent months we’ve seen some serious divergence between small and large cap — with a distinct bias to the downside for the smalls. Ergo, $TZA has been a better hedge, lest the market is rising fast. Then you’re fucked with $TZA.
If you enjoy the content at iBankCoin, please follow us on Twitter
