A Pullback That’s Largely Driven By Tech And Growth Stocks

Last week saw a wide divergence in the stock market. Sectors that exploded higher after March 2020 (e.g. tech, IPOs, growth stocks) saw sharp drawdowns while sectors that lagged significantly (e.g. energy & finance) are catching up. In this Market Report, I will highlight a few indicators that matter right now. But more importantly, I’ll discuss how we’re investing & trading in this environment because, at the end of the day, the only thing that matters is how you’re positioned. Everything else is just noise.

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Sentiment

Sentiment is not displaying excessive pessimism despite the recent selloff. Here’s the Nasdaq Daily Sentiment Index:

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Now, of course, sentiment doesn’t need to fall to extremely low readings for markets to bottom. Sentiment is mostly just a function of price. Markets bottomed last October on sentiment that wasn’t much lower than today.

Insider Buy/Sell

There’s been a slight uptick in corporate insider buying recently as stocks pullback. Past market bottoms saw a higher insider buy/sell ratio, so this could be a sign that the pullback/correction isn’t yet over.

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Relative Gamma Exposure

Relative Gamma Exposure (Gamma Exposure divided by the S&P 500’s value) plunged to a record low.

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Historically, such low Relative Gamma Exposure was a bullish sign for stocks over the next 3 months:

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USD rally

Stocks and the dollar have been inversely correlated over the past year, so it’s no surprise that the U.S. Dollar is rallying right now as stocks pullback. There’s been a slight uptick in large speculator positioning towards the Dollar. The dollar will rally higher if stocks fall further. This matters for funds like ours that invest in UK private assets.

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