More and more risk-on areas of the market are perking up with every passing day.
We’ve watched risk-appetite steal the show overseas in recent weeks, and now we’re seeing it stateside in US markets.
Small caps have outperformed off the April lows.
Speculative growth and ARK stocks have outperformed off the April lows.
Tech has led. Discretionary has led. Growth has led. High beta has led.
All of this leadership boils down to the same thing.
Investors are embracing risk at an increasing rate. They want more exposure to the riskiest stocks and assets around the world, not less.
We just talked about this at our live event yesterday. We’re listening to the market and getting more aggressive on the long side.
And the latest example this week is none other than solar energy.
I mean, could you think of a worse-performing industry group? These are true secular laggards. They haven’t participated in the least bit in the current bull market run. They never showed up.
But they’re showing up now.
Here’s a table of the solar energy stocks that still exist. It illustrates their impressive performance this week.
But, the story is bigger than just some short-term momentum for this group of beaten-down names.
Sentiment is washed out as a prolonged bear market has crushed the entire industry. These businesses were buoyed by government subsidies in the past, and when that went away, a handful of solar stocks went away too.
That’s a positive for everything that made it through to now.
And a bigger positive is that the street still hates these names. This is a classic example of the shorts overstaying their welcome. And they think they have a favorable political situation in place now, so they feel good, but it never works that way.
Solar stocks were among the top-performing industry groups during Trump’s first term. Then, they were some of the worst performers once Biden took office.
Say that again out loud so it sticks, and take a hard look at this chart:
The only takeaway here is to ignore politics. It won’t help you. It never does.
Here’s what does help… short sellers.
The short interest in solar energy stocks is simply off the charts right now. This is the most-hated group of stocks in the market.
I’ve been taking shots at some of them, with little success, since last year. But more importantly, that has put them on my radar. I’ve been stalking this group. I think there’s something here.
And this week’s price action is exactly how a short squeeze begins. Look back at the table. These stocks are rebounding in a big way.
The fact that we’re seeing it across the board only gives me a higher degree of conviction that this move is just beginning.
Look at the performance from these solar names this week.
50% from Solaredge!? Imagine holding that stock short right now.
More faces will be ripped off soon. This is just the beginning.
In our Breakout Multiplier portfolio, we bought calls in a solar leader today. It’s our vehicle of choice, so we figured we’d start there. We plan on putting out more solar longs in the coming days and weeks in higher-beta, more speculative names.
We talked about our current market view and how we’re positioning moving forward on our live event yesterday.
Long story, short… we have our offense on the field.
