Honestly, I didn’t expect what I wrote yesterday to come to fruition so quickly. The S&P 500 closed down 49.37 points to 5,584.54 and the NASDAQ Big Tech took a hard hit at 364.04 to 18,283.41. But the pretty pink elephant in the room is the Russell 2000 small cap index. It was up .73.28 to a new yearly high of 2,125.04. SO WHAT DOES THIS ALL MEAN MOVING FORWARD? It only reinforces what I mentioned yesterday. If you’re into big tech, it is probably time to take some money off the table. Volume picked up to the sell side, approximately 23% to the downside. If you’re a long-term investor, get ready, as I believe the short-term correction may have started. Corrections in some of the big names could be steep and nerve-racking (emotional). Remember, could have, would have, and should have (taking money off the table) never made anyone any money.
WHY TAKE MONEY OFF THE TABLE?
It’s always good to have money to invest, (being an opportunist isn’t a bad thing). Many other opportunists most likely will (hedge funds get paid on profits, not losses, and they are opportunists). And the entire market system runs on supply and demand (if there are more sellers than buyers, what happens?). Most important! I think we will finally see money come out of the big names and shift into small-cap stocks. They have underperformed for quite some time, as evidenced by the powerful move yesterday. It may be their time.
WHY SMALL CAPS NOW?
When the Federal Reserve starts to lower interest rates, money typically flows into small-cap stocks for numerous reasons, which I will address later. And the other reason is leaders don’t stay leaders forever. Historically, we see rotations in the market, another thing to talk about later. I mentioned TSLA yesterday and a short squeeze. Read this article I saw. It reinforces what I said.
MY NUMBER ONE STOCK PICK.
My number 1 stock pick is UPST upstart. This stock is not for the faint of heart. It is not unusual for it to move up or down 5-8% in a single day. I have bought this stock numerous times over the past 7-8 months. Yesterday it was up 8.4% to 26.92. There is a large short position in it and I believe the short players are not only wrong, I believe they will get burned as interest rates move down. Their product should see increased demand, which should drive earnings higher. I plan on writing about it shortly.
POSSIBLE FLY IN THE OINTMENT
The Federal Reserve. He threw the market a head fake last year towards year-end and gave the market a false perception that he had 5-6 interest rate cuts planned for this year (I will speak on the federal reserve in Delta later). But what matters now? If the Federal Reserve does not begin to lower rates no later than September, (I believe he should do it this month), it increases the chances significantly of a recession next year. Which would kill this market at either the end of this year or the beginning of next. I worry about this federal reserve. He is more reactionary than proactive. All economic numbers are lagging indicators. It means it takes a while to filter into the economy. The other fly in the ointment. The election. I have no idea how UPST will perform in the near term because I expect market conditions to weaken significantly between August and September. If the Federal Reserve takes a dovish stance, the best moves in this stock most likely will be between December of 2024 and May 2025. As long as the economy does not go into recession. That depends on the Federal Reserve.