Jump in SKEW, small caps, financials, and material stocks

by Troy

Jump in SKEW

A wall of money continues to flow from market to market based on the popular narrative at the time. 6 months ago it was “tech does well under corona”, so everyone rushed headlong into tech stocks. Now it’s “vaccines are good for the economy”, so everyone is rushing into small caps. Result: small caps jumped higher today while the NASDAQ fell.

In the meantime, SKEW‘s 3 week average continues to rise. SKEW measures the risk of a black swan event, so traders usually interpret high SKEW readings = bearish.

In the past, such high readings were something to be concerned about, but didn’t always result in an immediate correction.

1. October 2017: stocks rallied for another 3 months before VIX spiked and stocks fell.
2. July 2018: stocks rallied for another 2 months before stocks fell in Q4 2018.
3. January 2020: stocks rallied for another 1.5 months before the crash in March.
4. September 2020: stocks fell immediately.

Watch out for SKEW in the coming months.

Jump in small caps, financials, and material stocks

Small caps, financial stocks, and material stocks popped higher yesterday. 36% of the S&P 500 jumped above their upper Bollinger Bands:

In recent years this often led to short term pullbacks, but weren’t consistently bearish after that.

Similarly, a large % of financial stocks jumped above their upper Bollinger Bands:

Short term bearish, bullish over the next 6-12 months:

Here’s materials:

And here’s small caps:

Once again, this is just a short term concern: