EB Daily Market Report - Quick Update - Friday, December 1, 2023
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Brief Market Update
I wanted to give everyone a quick heads up on what I'm seeing today. First and foremost, it's another very strong session with excellent leadership from small caps (IWM). The IWM finally (!!) broke out above the 180 level and it certainly appears to have staying power. It's been mostly a "trend" day, where prices have simply moved higher all day long, with little rest or consolidation.
We are seeing more of the same as value-oriented areas have come to life, while growth areas take a back seat. This is typical behavior and leads to small cap outperformance historically. Check out this seasonality chart that compares IWM to QQQ over the past two decades:
December has been the best month for small caps (vs. the NASDAQ 100) over the past two decades and November is 3rd best. Only June has bettered November over this time frame. If we add up IWM's average relative strength in November and December (0.6% plus 1.1%), we see that the IWM averages outperforming the NASDAQ 100 by 1.7 percentage points during these two months - and that's over a very long period, 20 years. If we add up the other 10 months, the IWM averages underperforming the NASDAQ 100 by 6.8 percentage points. NOW is GO TIME for small caps and they seem to be taking advantage of its seasonal strength today.
I can't make this stuff up, but check out the S&P 500's chart today:
The candle body high (represents opens and closes, not intraday highs) from July was the 4598.26 open on July 27th. Today, we reached 4599.39 and then backed off. 4600 is our number folks. If we can muster a nice close above 4600, there's just one level left. It's the all-time high from January 4, 2022, just before the 2022 cyclical bear market began, at 4818.62. 4804 was the high candle body. This is getting more and more exciting.
Individual Stock Trades
First, I was asked by a member to discuss the latest on TG Therapeutics (TGTX), which is a potential short squeeze stock. We continue to move higher since breaking out at 11.88 (which is the closing stop to be considered, in my opinion). That's the good news. The volume thus far, however, on this breakout and advance has been average at best. That doesn't mean it won't go higher. It just means a short squeeze has not kicked in. A short squeeze REQUIRES extremely heavy volume, because we're looking for PANIC by short sellers, covering at nearly any cost to end their pain. That could still lie ahead of us. Here's the TGTX chart:
TGTX could run to 20, or at least that's the next potential resistance I see. If it gets there, I can only imagine the panic that would be felt by those shorting the stock below 12. It won't feel very good. The specific question asked was about yesterday's volume that exceeded average volume. Well, look at that level and what we saw a month ago. Clear difference, correct? I want to see volume bars that SWAMP the average, not barely clear it. So I still love TGTX here, though I will continue to caution everyone that these stocks are VERY HIGH RISK and are not for everyone. TGTX could be back in single digits. Many potential short squeeze stocks do that. They run briefly, then right back into the prior downtrend. It's a big factor why I only take small positions in short squeeze stocks. If you're right, you'll still make good money, but if you're wrong, it won't completely destroy your portfolio.
Here's another short squeeze stock that I traded this morning. Check out the volume bars:
Look at the 3 prior attempts to clear 5 bucks. The blue arrows mark the volume on those attempts. Now look at the volume the past two days. See the difference? What we're seeing right now is what we WANT to see. The possibility of panic by short sellers. If they begin buying back shares in earnest, along with those buying for a short squeeze, we could see a parabolic move higher for a period of time. How high could it go? Honestly, I have no idea. Short squeezes aren't rational moves. They're completely IRRATIONAL, which makes predicting a target nearly impossible. Remember GameStop's (GME) 140% short of float? It ran from 7 bucks to nearly 500 in 4 months. I believe the run was from 19 to 500 in just 2-3 weeks from what I recall. Short squeezed result from a total imbalance in buys vs. sells. It's the exact opposite of a market crash from a long's perspective.
One stock that I mentioned and bought during Wednesday's LIVE trading room was ADT, Inc. (ADT), which is a small(ish) security company that's benefiting tremendously from a recent hammer at support, followed by the rotation to small caps:
My buys were at 5.84 and 5.78, averaging in at 5.81. Taking profit at any point now results in a GREAT trade!
The gains are adding up now, but don't get greedy. We know that major price resistance is in the 6.50-6.70 area. We only have another 30 cents until we move into that zone. Is it worth holding out for another 30 cent gain and risk the 40 cent profit? That's a question that each individual must answer. I'm holding for now.
Have a great weekend and don't forget about the Fall Special!
Happy trading!
Tom