THREE IMPORTANT THINGS SINCE ELECTION

ROTATION INTO MID / SMALL CAPS PERSISTS.

My last post was a while ago, in last August, I’ve been really busy.

Let’s share what I’m seeing and what I expect from here. Three important things happened since Trump won the presidential election: 10 year yield topped out at 4.50%, Bitcoin broke out off an 8 month consolidation within a long term uptrend and rotation from large into mid / small caps has been remarkable.

10 YEAR YIELD and SMALL CAPS.

Better less words and more charts, so let’s look at the 10 year yield compared to IWM:

Small caps broke out off a big consolidation in July, anticipating to a fall in yields. Remember, they were affected by the JPY carry trade thing at the beginning of August like almost everything asset, but managed to find support a the lows of its previous consolidation. Then, it came something very interesting that showed up the strength IWM was going to show: higher highs and higher lows price structure despite yields climbing from 3.60% to 4.50% in only two months, forming a VCP (volatility contraction pattern). Small caps broke out again on Trump election with yields at highs, retested the break out level and climbed again into highs with yields breaking down this week, after forming a topping pattern.

This is IWM / SPY:

We have a HL and a down trend line break. Waiting for a HH to confirm, but looks like a new uptrend is ahead in this area of the market. Personally, I think HYG resolving its structure to the upside will be the a tailwind for small cap stock, so tracking it for moves validations. Attempting a gap fill, currently. I would welcome a handle formation before attempting a breakout.

HOUSING SECTOR AND RSP.

There has been a concern regarding the under performance of the housing sector, which I always keep an eye on as it gathers all the pieces of the economy. It has really suffered with the behavior of yields since they breakout above 4.10%. However ITB /XHB found support at a previous support level and managed to make a higher high in the daily time frame since then. Recently, with the breakdown in yields, the sector confirmed a wedge pop and is currently above all KMAs confirming a potential uptrend with a first HL / HH structure after the correction.

The under performance of the housing sector during the past weeks did not caused a real trouble for the RSP (S&P equal weightted ETF) which found support at the 50DMA after pulling back when the 10 year yield broke out off the 4.10 % level, as you can see in the following chart:

So, it is fair to say that small caps are strong and leading, the housing sector has potentially found a bottom (as yields found a top) and RSP looks strong too. This suggests that breadth is improving and that supports the idea that a broader market rally should be in the making towards year end. Will see what happens.

BITCOIN.

What to say about bitcoin that has not been said? It broke out off a multi month base within a long term uptrend, so I expect the rally to continue above 100k. It came closer to that level and found supply, but buyers jumped in to defend prices at the 20DMA, printing a HL. So far, price structure remains bullish. A consolidation / chop / bull flag formation would be expected (and ideal) bellow the 100k level.

Miners and fintech sector has been strong recently, as many of you know. Other cryptos, besides BTC has been on demand in the past days, which favors COIN, a stock that has all my attention. Will see if all the ISO 20222 related theme, makes the fintech / payment services sectors hot.

FINX is the Fintech ETF y track, not because I trade it but because I track its holdings to find trade opportunities. Look at FINX weekly chart:

It broke out ahead of presidential elections and printed a big ignite candle the following day, when markets reacted strong on the results. Its holdings are: ACIW AFRM BILL BITF BKKT BLND CIFR COIN CTLP DLO FI FIS FLYW FOUR GPN GWRE HQY HUT IIIV INTU JKHY LC LMND LPRO LU MARA MITK ML MLNK NCNO PAGS PAY PAYO PGY PSFE PYPL RIOT SOFI SQ SSNC STNE TOST TREE UPST VERX VIRT.

Many of them are currently stocks of interest that have standed out during the last weeks.

STOCKS OF INTEREST.

My focus is mainly in stocks that are breaking out off big bases. Many of them are well known by many traders from years ago, as they have been basing for a long time. There are some stocks that have been up trending for a while and keeps looking good too. However I prefer to trade stocks that are breaking out of big bases and could be in the beginning of a new big uptrend, than stocks breaking out off later stage bases.

This is a list of the most important stocks to me at this moment:

KGS DESP BE BILL AFRM BROS CLS DOCU GEV HOOD IONQ NNE RDDT RKLB TOST TSLA TWLO UPST AVPT MGNI SOFI SQ LMND WULF REZI GEO DOCS WWW WGS SE DAVE BTSG AMSC CVNA APLD INOD MIR NN AAOI KC GLBE KD VERX SNOW ACHR HIMS GENI KT NRG RVLV COIN UPWK ZLAB WRBY RBLX CFLT GRAB DDOG OSCR BLND YMM NET ONON SG SOUN AI GTLB SMTC OLO

70% of them are small / mid cap stocks and only 30% are large cap stocks (except for TSLA, the only mega cap stock in the list). Just over 40% of them are technology stocks and the rest is among the industrial, financial and consumer cyclical sectors, mostly. I have positions in some of them and waiting for the right spot for entries in others.

Hope you have found this spot usefull, wish a big year end to all!