Stocks Got Overbought
What is it?
Last week we determined that many U.S. stocks and even benchmarks became overbought by our standards. It has been a strong short-term rally within an unfavorable trend on a longer term chart. We believe some investors may have been late to invest in this short-term rally.
Why does it matter?
The overbought signals might be right. We are looking for a sustained trend before adding larger positions to equities. Since we are getting a signal that shows many U.S. stocks are overbought, we decided to sell some that were overextended.
We anticipate more sideways to downward moves in the equity benchmarks on a short term basis. Once they sustain a longer positive trend without already being overbought, we will add to those positions. For now we feel more secure with lower allocations to those overbought equity positions.
Meme Stocks are Back
What is it?
“Meme stocks are shares of companies around which online communities have formed to promote and build narratives.”**
They have grown more popular since they successfully launched the prices of outdated companies’ stock mainly by individuals in large groups.
Why does it matter?
Last week Bed Bath & Beyond saw a jump in its price before falling quickly. It will be interesting to see how the SEC (Securities and Exchange Commission) manages these situations. It is inherently risky to invest in things that can be so volatile. But it could be a good thing that individuals have some control compared to the large institutional investors. We believe that with our tactical (active) portfolio management we would be able to limit excessive risks that may be faced when investing in single companies like Bed Bath & Beyond.
We are adding a Tactical All-Star model to our portfolio. That will include some of the top companies across all eleven U.S. sectors. This model will invest directly into the equity of individual companies as opposed to an ETF that could represent a whole sector. We call it the All-Star model since these will be the big names many people will know and want to own for various reasons. Let us know if you are interested in this model. If it is suitable you could be invested in the All-Stars.
Other articles we found interesting this week:
Young Bankers Worry About Nights Off Early and Dark Days Ahead
Fed Officials Offer Mixed Signals on Size of September Rate Hike
Bed Bath & Beyond’s stock price warrants an 80% drop: Analyst
Current 401(k) portfolio
Our last portfolio reallocation: 5/19/2022.
Want more information?
The weekly market insight provides a window into the process we use in our investment management process. At Breakaway, we believe markets are always changing and require a nimble yet data-oriented approach.
Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
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Sources:
*Ann Saphir and Howard Schneider. “Fed officials united on need to hike rates, divided over how high to go.” Reuters. 8/18/2022. https://www.reuters.com/markets/us/feds-daly-50-bps-or-75-bps-sept-rate-hike-reasonable-2022-08-18/
**Adam Hayes. “Meme Stock”. Investopedia. 2/22/2022. https://www.investopedia.com/meme-stock-5206762
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