Alright you degenerates…
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The “non-believers” are finally starting to think this might not be a bear market rally. We’re seeing players come out of their bunkers as sentiment indicators come off of historic lows. Hedge Funds, who’ve maintained a healthy skepticism of market strength, finally caved and added long exposure over the past few weeks. Mind you, the last time Hedge Funds were net long was back in May of 2022. This reflects how quickly sentiment has shifted over the previous few months. Consequently, short-term sentiment indicators are flashing heat. The Squeeze-O-Meter closed last week at 61, and the CNN Fear/Greed Model is hovering around neutral at 46. Traders are eager for opportunities and have been scooping up short-dated options to take advantage of the move. The last few weeks have been a prime example of “opinion follows trend”; market sentiment only shifts after the move have taken place. Players will then look to justify said move with a new narrative (inflation has calmed, there’s no reason to be scared anymore).
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China has been on everyone’s radar, given the outperformance in $KWEB over the past couple of months. What was deemed “uninvestable” just six months ago is now on every institution’s watchlist for 2023. The flow has supported this narrative shift; we’ve seen increasing bullish sweeper activity in names like $JD and $BABA. Traders see opportunity in the sector because of the economic stimulus and easing of Covid policies that have been in place since 2020. Whereas the United States is in “tightening mode,” China is in “easing mode,” and its government is deploying its entire arsenal to stimulate economic growth. So if you live by the motto “don’t fight the Fed,” you may want to look at some opportunities in China.
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Traders remain selective about the names they’re buying. Unlike early 2022 where Energy was the dominant theme, we haven’t seen leadership in one particular sector yet. As a result, the flow has been mixed; traders are picky about the names they’re buying. We anticipate that 2023 will be the year of individual names and selective buying. Plenty of under-the-radar stocks were neglected over the past couple of years and are just starting to get some love from players. Following the tech bubble burst in the early 2000s, small-caps outperformed while many investors frustrated themselves trying to catch a bottom in tech stocks down 80% and more. We could see a similar situation here; many traders are fixated on buying the hyper-growth names that worked well in 2020. However, those names are still crowded and full of bag-holders who bought at the top. Thus, we are more interested in the laggards that are just seeing signs of interest from the smart money. We’ll keep our eyes glued to the Wiseguy Alerts Board in search of new opportunities.