The story of the market in 2021 has been rotation. There has been a series of strong shifts between value, growth, small-caps, big-caps, speculative, and other themes. Traders that have been able to navigate these shifts have performed extremely well, but it has been a very challenging task.
The most significant shift in the market this year occurred around mid-February when speculative favorites and growth stocks were suddenly dumped in favor of value names. This was triggered by the reopening in the economy and the recognition that the 'stay at home' names had likely topped out. Many of the favorite groups like SPACs, biotechnology, cannabis, gambling, EVs, and high-beta growth fell into ugly bear markets. What made this action much worse was that it was not at all reflected in the senior indices that were driven higher mainly by stodgy value names and financials.
The cycle has turned again in recent weeks, with growth names coming back. The ARK Innovation ETF (ARKK) , which is a proxy for some high-beta growth, has bounced off the May lows, and is not trying to overcome some overhead at the 50 and 200 DMA.
The rotation is now favoring the speculative names that topped in February. SPACs had the best action in months on Tuesday, and there are some good-sized gaps in names like Clover (CLOV) this morning. The meme trade is still running, but the speculative focus has shifted to some different names.
This shift in trading was triggered in part by the announcement of the Russell index reconstitution, which will take place at the end of the month. The list contains a number of stocks that have completed SPAC transactions and are now being rediscovered as offering attractive valuations.
The senior indices are flat and not doing much, but the stock-picking under the surface is fast and furious again. This sort of action did lead to the top in February, so we will have to watch for frothiness in the speculative names, but currently, there are some big moves for aggressive traders, and they are going after the opportunities hard.
