Market Rebounds To All-time Highs Last Week; Electric Vehicles Makers Are The Focus This Week
Market last week staged a great bullish reversal from Tuesday onwards without any follow through to the downside. As a result of the rally last week, the S&P 500, Russell 2000 Index and Nasdaq Composite have all closed at all-time highs. The top 5 sectors that rallied the highest this week are in order of energy (9.55%), basic materials (7.69%), healthcare (4.17%), financial services (4.07%) and consumer cyclical (3.18%). The bottom 2 sectors are real estate (-1.19%) and utilities (0.25%). The rally continues to show that the market is doing a great job of rotating into less extended sectors when required, to allow overheated pockets of the market to consolidate.
When we look at the major indices, the Russel 2000 Index continues to be the front runner of this market rally. But when we look at the Nasdaq Composite, large technology companies' price action continues to look lethargic compared to their smaller peers. Notable technology sub-groups that stand out are solar, semiconductor, bitcoin plays, Chinese ADRs, electric vehicles, and electric vehicle infrastructure providers. We have avoided a larger pullback for now. However, I would still take note of the above-average selling volume, which have appeared lately. I think such 1-2 days sudden pullback could be common in the coming days when the market rally higher in order to shake out weak hands.
In the short term, however, we may see some consolidation with some profit-taking happening on Friday. Indicators such as the % of S&P 500 stocks above the 50-Day Moving Average currently stands at 80.4% while the % of S&P 600 Small-Cap is showing at a new extreme bullish reading of 88.2%. We saw quite a number of reversals in several extended names and there is quite a large percentage of stocks that actually closed red.
I started redeploying my cash into equities and options on last Tuesday and Wednesday as the market rebounds. But like I said about the short-term extreme bullish readings, I have started to lock-in some profits on some positions on Friday. E.g., FUTU $50 Feb Calls for ~330% gains in my longer-term account; possibly roll into longer-dated options or higher strike price Feb Calls. Other notable positions I initiated include a new ½ size position in $SKLZ. I am looking to add to the full-size position on any market weaknesses.
Going into Monday’s trading session, some interesting set-ups I am eyeing include XPeng Inc ($XPEV), Li Auto Inc ($LI), Magnite Inc ($MGNI) and Corsair Gaming ($CRSR). Electric vehicles makers are looking strong this week with Nio releasing its ET7 luxury sedan and its annual Nio Day. It could trigger other names to continue moving higher. There are a couple of technology names ($U, $RXT, $SPT) with better risk/reward opportunities, which I think should be interesting areas to look out for when market rotates back into tech.
Once again, stay agile in this market and stay safe.