Jan 28 2022 (Market Close) CQNS "UP" and "DOWN" run insights

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