Market Signals Flip to Risk-On

Market Signals Flip to Risk-On

February 26, 2021

And just like that, stocks resumed their march higher. The short squeeze in "meme" stocks was wreaking havoc on portfolios, but that panic is no longer here. While that is frustrating for long-term bulls that want a deeper pullback to add risk to, it's part of the game. I have been patiently waiting for a nice dip to buy … I'll just wait a bit longer.

Key Takeaways

  • Stock breadth improved after the latest pullback.
  • Big Money institutional players are likely adding risk, as seen by accumulation/distribution analysis.

In the game of investing, you must be nimble. Bull markets are difficult to time. Most of you know by now that I am a long-term bull. I follow the data. When it shifts, I shift. Below you can see what I mean.

Here's a chart of the iShares Russell 2000 ETF (IWM) where you can try and follow along. You can see that the exchange-traded fund (ETF) started a downtrend that quickly reversed. The accumulation/distribution levels make it clear as day as to what's happening. The bulls stepped in.

Chart showing the share price performance of the iShares Russell 2000 ETF (IWM)

TradingView.com

The pain that hedge funds felt looks to be behind us now. Markets likely dodged a big bullet. So, for now keep pressing forward … at least stocks are.

So, is that it? Are there other things that point to higher levels for stocks? YES. Earnings have been working. Guidance has been strong. When stocks report solid earnings that beat expectations, and their prices rise accordingly … that's another bullish feather in the cap.

Check out what I mean. Here are is one stock that crushed expectations: Activision Blizzard, Inc. (ATVI) destroyed the Street's targets. Analysts expected the December quarter sales to be $747 million, yet they easily topped that with $814 million.

I'll give you another example. PayPal Holdings, Inc. (PYPL) also had a rosy report. This has been a Wall Street darling for years. (I own it personally and in managed accounts.) For the fourth quarter, net income grew 209%, while the company's Total Payment Volume growth surged by nearly 40%. And its shares were rewarded, breaking to new highs. Keep this growth monster on your radar.

So, let's wrap this all up. The data is getting stronger for the market as Big Money players step in to buy the dip. But that's not the only signal you need to pay attention to. Growth companies are destroying expectations.

Never be surprised at how quickly dips get bought in a raging bull market. Being nimble with a long-term view is the way to win big over time.

The Bottom Line

We (MAPsignals) are bullish on high-quality U.S. equities in the long term, and we see market pullbacks as areas to pick up great companies. 

Disclosure: The author holds long positions in PayPal (personally and in managed accounts) at the time of publication but no position in Activision Blizzard or the iShares Russell 200 ETF.

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