Weekly Update: An Interesting Year
It has been an interesting year…
The Nasdaq Composite index finished 2023 up 43%. Hearing that figure, most would assume it was a raging bull market where investors all made a fortune.
But that was not the case.
Firstly, the indexes had varying performance. While the Nasdaq had its best year since 1999, the others gained far less.
The Dow Jones Industrial index, for example, climbed only 13%. The S&P 500 went up 24%, and the Russell 2000 gained a respectable 15%.
The Nasdaq’s outsized performance was due largely to a small handful of stocks now referred to as the ‘Magnificent Seven.’ Apple, Amazon, Alphabet, Microsoft, Nvidia, Tesla, and Meta all saw huge gains which were largely just recoveries from the 2022 bear market. Once stocks began showing progress, institutions piled into these highly liquid former winners and boosted their share prices off the lows.
But that picture is quickly changing.
As I pointed out in last week’s update, small cap stocks are now leading the market. The Russell 2000 (IWM) outpaced its large-cap counterparts in December, and I expect this trend to continue.
So where is money flowing into 2024?
Right now, we are seeing four leadership groups emerge. These are the groups and sectors showing clear outperformance where I believe institutional money is flowing.
The first group is construction. I have covered this topic in recent webinars in greater depth, but I am forecasting a large housing boom taking place well into 2024. Price action in the markets is supporting that macro thesis. Homebuilders, building materials, and even basic materials like steel and lumber which are used in construction are all performing well.
The next leadership group is banking. Bank stocks have been surging in the final two months of 2023 and look like they will continue doing so. Rates are falling quickly, and an increase in mortgage demand will likely boost sales and profits as well. Unfortunately, most bank stocks are extremely extended after powerful runs to end the year. Many names in this group are up 30-50% in just the last sixty days. So, I would like to see a pullback or consolidation before most of these names offer clean entry points.
The same is true for the crypto space. The sector is up 55% in just three months leaving most stocks in this group too far extended to buy. Luckily, we bought MARA and BTBT in my Alpha Stocks service when the initial breakout occurred and have pocketed big gains on those trades. We will keep an eye on this space and wait for a good entry point if one is presented.
Finally, the biotech group is showing a lot of relative strength. It is the #2 sector in terms of performance over the last 30 days and in the top 5 over the last three months. There are more than 795 biotech stocks on the major exchanges, so there are going to be both dogs and gems in this group. We will focus on the latter.
Our goal is to be in the best stocks in leading groups and to buy from proper, low-risk setups. For that reason, I have focused recent stock scans on biotech and construction-related stocks. These are strong-performing areas that still have some stocks emerging from constructive basis and offer decent entry points.
Below are a few of the stocks I’m watching:
Biotechs: JANX, MLYS, IMTX, MRVI, PRME, TERN, ALLO, AUPH, BCRX
Housing/Construction: RDFN, MTH, GRBK. TOL, WSM, PLPC, CARR, DHI, MTH
I am also waiting for potential breakouts in Fastly (FSLY):
And Interactive Brokers (IBKR):
2024 is setting up to be a strong year for stocks. And unlike 2023, I do not expect it to be limited to a small handful of mega-cap names.
We are seeing broad participation with 85% of all stocks trading above their 50-day moving averages. And if the Federal Reserve cuts rates as expected, investors could have one of their most profitable years yet.
Happy New Years.
Best wishes for your trading,
