Hello on this calm Sunday evening.  As we write this, US Equities will likely open lower, Energy prices are higher (significantly), US Government Yields are rising, Political Uncertainty seems higher, and there is fear of further market declines. 

People are discussing things that make equity prices drop.

Here is a sobering thought: Market returns continue to fall (based on prior 12 months or 252 trading days):
Riskfree rate                         =  1.00%
Actual SPY return                =  21.02%
Use ceiling S&P500 rate     =  20.00%
Actual IWM return                 =  -4.11%
Use floor Russell 2000 rate  =  5.00%
Actual QQQ return                  =  12.23%
Use actual NASDAQ 100 rate  =  12.23%
===========================================
Market return                    =  11.41%

Much of the euphoria of the past 2 years is behind us.  It is already behind us, and now we decide, as a market, how we continue.  Anyone with money in the market has resigned themselves, all things being equal, to lower expected returns (or lower prices and higher risk for higher expected returns).

On the UP run, we see a new mix of stocks (some of which have risen closer to the top of the run), and a few new performers.  We see the same type of stocks even after the latest market weakness.  This means that these stocks are lower in price than they were a year ago, and they still have lower risk/return than other stocks.  

Total US listed equities (or tickers of things that are listed in equities markets that are not equities) that traded on Friday: 11,267 tickers.  Profitable stocks that traded (and passed all of our data validation steps): 2,313 common stocks.

If you held all of these stocks equally, you would expect to earn 13.1% (excluding dividends).  Volatility of prices is 1.1 x 10-4.

Top 22 UP run stocks:
​$SI $ICHR $UCTT $ACLS $AOSL $LSCC $EQOS $SITM $GRWG $MGNI $CALX $EXPI $TTGT $AMAT $CLFD $COHU $NVDA $TTD $APAM $FORM $LKAC $TER

The stocks chosen are driven by having exceptionally large BETA values (vs. $SPY).  These "UP" run stocks will scream higher (and with lower volatility) if the general S&P 500 rises.  We see stocks from a number of industries.  

On the DOWN run, out of 11,267 stocks only 1,187 have negative net income and passed all of our data validation steps.  The expected return of these stocks is higher than for the UP run, coming in at 16.8%.  The volatility of prices is 3.0 x 10-4, or almost 3x higher. 

Lesson 1: volatility is higher for stocks with negative net income than for stocks with positive net income.

Down Run: $LWLG $AADI $PHUN $RGC $BSQR $GME $CRTX $OCGN $NRXP $ANVS $ACY $BYSI $FREQ $PROG $GOED $EAR $DCPH $MMAT $ATER $RFL $AMC $SAVA

On the down run, we see many of the same stocks in the list with a few notable exceptions.  We see a few popular MEME stocks make the top 22.  These have increased risk than before relative to their expected returns.  Overall, short bets from last week would stay in place.

Good luck in the markets this week.

​Jeffrey Cohen

Jan 27 (market close) update: 
Most of the small cap, aspirational growth stocks that we track fell today.  Larger, and more profitable stocks held strong.  Our CQNS "DOWN" stocks (~40) from this week, and those that used to be on the list in November 2021, were all down with one exception.  The market punished stocks with higher volatility.  IMO: This is due to the connection between volatility, liquidity, and expected returns.

We ran our CQNS "DOWN" model last night (Jan 25) and came up with these 20 stocks to avoid, especially if the market drops.

We shared them in a video this morning.  Interestingly enough, the US Equity Futures are up today, so it will be interesting to see if these rise 'with the tides of risk.'  IMO: Risk is higher than expected return, relatively speaking, so these are still stocks to avoid.  Could be fun if you like roller coasters.  A roller coaster goes up and down (and people make and lose money), but end up at the same place.

​Oh, and watch $KMB today.  It is snapping back into its trading range.  Down almost $8 in pre-market trading today.
​
Top 22 Down Run picks today (based on last night's market close data):
$LWLG $AADI $PHUN $BRCN $RGC $BSQR $NRXP $EYES $OCGN $CRTX $ANVS $ACY $REPX $BYSI $FREQ $SAVA $MINM $GRTX $PROG $GOED $DCPH $EAR

$CRTX fell 32% this morning.  Would have paid for the run :-)

The FOMC call destroyed the 'short bump up' the market was enjoying today, sending the risky indices down 4%+ during the call.  The market was flat from press release to call start (so it really was the call).
We re-recorded our Week 4 video tonight after markets closed (with sound this time).  Sorry for this morning's video.  You can still read the stocks and see the screens we shared. 

Here is the tweet we sent this morning with our video.
CQNS "DOWN" run. Top 21 stocks to avoid or short today (20 trading days).
GO!
Video: https://youtu.be/xzv7sbT4RQ4
$LWLG $AADI $PHUN $BRCN $RGC $BSQR $NRXP $EYES $CRTX $OCGN $ANVS $ACY $BYSI $FREQ $REPX $MINM $GRTX $SAVA $PROG $GOED $EAR
​WE HAVE NO POSITION.

We gave out these results before the market opened on Jan 21, 2022.