Euclid Investment Advisory Blog

Review & Analysis at Close February 1, 2021

Comments

Much has been said and written last week about the social-media coordinated flash-mob attack on highly shorted stocks held by several hedge funds. One may dismiss this as retribution to those 'greedy' short sellers. As it turns out, hedge funds also hold stocks that are liquid and have significant unrealized gains. Just as most of us have in our 401(k), IRA, taxable accounts and in institutional funds.

When a hedge fund must cover a short to cut mounting losses, they raise money by selling their big gainers: stocks fall, undoubtedly hitting sell stops in portfolios, further driving prices down. We all saw our portfolios decline last week. During the GameStop (GME) market turmoil, we sold XRT (SPDR Retail) which has a holding in GME. We sold two lots of XRT near its peak, realizing a gain of 37%.

In an internal note, we felt last week was a passing storm.

Equities

US, European and Emerging Markets remain in strategic Bullish trends. Last week's selloff lowered overbought levels.

  •  Equity Styles: Large Cap Growth remains dominant over Large Cap Value. Small and Mid-cap stocks continue outperforming Large Caps.
  • Ranked Sectors:
    o Leaders - Consumer Discretionary, Telecomm, Technology, Financials;
    o Laggards - Energy, Real Estate, Utilities, Consumer Staples.
  • Interest Rates: Interest Rates: The 30-year and 10-year US Treasury Yields rose a bit from last week and remain above rising trend lines; the 10-year – 2-year Yield curve is strongly positive.
  • Currencies:  The Australian Dollar, the Euro, and the Yen, are all strategically Bullish, but weakened last week; British Pound, is Bullish and strengthened last week.

    US Dollar in a Bearish downtrend, continued moving up after previously reversing up from oversold level. Gold is nearing Bear Alert level.

    Market indicators reversed up after last week's market pullback and remain Bullish.
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