Intraday trends are becoming the name of the game. Over the past month, I have noted a lot of intraday volatility with surges followed by pullbacks, then new surges. This happened in both directions without dependency on opening lower or higher. Now, we are returning to trends. Relentless trends. I pointed this out Monday with the Russell 2000 index as it marched higher. This morning, we saw the reverse happening on the Nasdaq. From a scalping standpoint, I prefer the back and forth intraday action as it provides fantastic opportunities. On the investing side, trends are much cleaner and clearer for multi-day to multi-month moves.
We're seeing the bloom come off the Covid-19 outbreak rose on Tuesday in regard to stock plays related to the pandemic. Teladoc Health ( TDOC) is shedding nearly 9%. Zoom ( ZM) is lower. Slack ( WORK) is lower. Chewy ( CHWY) is lower. RingCentral ( RNG) is lower. Citrix Systems ( CTXS) is lower. Livongo Health ( LVGO) is lower. Peloton ( PTON) is lower.
It's true the Nasdaq is off by 1% Tuesday, but these names are underperforming on a relative basis, many of them by quite a large margin.
The rotation from Nasdaq names into the Russell 2000 and financials continues in full force. This is the exact area where the outperformance of IWM fund ( IWM) compared to Invesco QQQ Trust ( QQQ) hit a wall the last time around. It's possible this time will be different, but the push is even more extended than last time in terms of price, although the Full Stochastics appears a bit strong. How we finish on Tuesday and how this plays out on Wednesday should go a long way in answering that question. If the Russell 2000 can continue its strong performance in comparison to the Nasdaq for another day, then I expect it to close that big fall from February and March. In short -- expect a 5% to 10% outperformance by the Russell 2000 vs. the Nasdaq over the next six to eight weeks.
One thing I've noted on the intraday side, as well. Do not try to fade the outperformer and do not try to buy the underperformer. There has been no intraday "catch-up" when these divergences in performance have taken hold. The only time I've witnessed any flattening of the difference is in the last five to 10 minutes of the day, which has become its own little slice of insanity. Besides, if you are looking to play an intraday divergence, the last 10 minutes of the day isn't your target time frame. That time of the day likely needs its own strategy right now.
Earnings season will really get rolling tonight. Names like Alphabet ( GOOGL) , Starbucks ( SBUX) , and Akamai ( AKAM) are set to report. All three are big names and all three sit on the Nasdaq. Alphabet will have a lot of influence on the entire Russell 2000 vs. Nasdaq comparison Wednesday. One will likely only need to watch the reaction to Alphabet to know how the above discussion on small vs. tech will play out.
Other names worth noting before trading begins on Wednesday are Yum China ( YUMC) (is business picking back up?) and Yum! Brands ( YUM) , Mastercard ( MS) , Boeing ( BA) (how ugly is the balance sheet?), General Electric ( GE) (how goes the turnaround?), Hasbro ( HAS) (feeling impact from shutdown?), Valero ( VLO) (impact from oil crashing?), and Spotify ( SPOT) (is the shelter-in-place boosting streaming audio?). When we get answers to these questions from these names and see how the market reacts, we should be able to plan out our attack for the remainder of earnings season.
(GE, SBUX and GOOGL are holdings in Jim Cramer's Action Alerts PLUS member club . Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now. )
