Street getting back to basics?

09/03/20
  • SEC data shows hedge funds recently bought more industrial stocks
  • MAS up 100%-plus since March, riding housing-market strength
  • Industrial metals have also extended their uptrends

Traders tracking the footprints of the Street’s “smart money” may have found interesting reading in recent reports that hedge funds lightened up on tech and health care stocks in Q2 and bulked up on industrials and financials.1

Although backing away from tech in the second quarter was not exactly a recipe for outperformance—the markets have a knack for humbling the smartest guys in the room—it’s at least interesting to see where large players may be looking for gains down the road. Even shorter-term traders can potentially benefit from longer-term tailwinds when they appear.

And maybe there was something to the shift after all. The S&P industrial sector has held its own in the market rebound, outperforming the S&P 500 (SPX) roughly 10.5% to 8.5% over the past month. Every sector has stocks that lead and those that lag, and in the case of industrials, building-supply company Masco (MAS) has contributed more than its fair share to the sector’s recent edge:

Chart 1: Masco (MAS), 2/28/20–9/2/20. Masco (MAS) price chart. Industrial-strength rally.

Source: Power E*TRADE


The stock, which rallied more than 760% from October 2011 to February 2020, has more than doubled off its March low. One possible reason for this seemingly “un-industrial” behavior is that Masco has been getting a boost from the still-red-hot housing market—the company supplies plumbing (fixtures and hardware) and architectural products (paint, decorative hardware, lighting) to the homebuilding industry.

Similar to the situation described yesterday in Logitech (LOGI), MAS has recently been in a range just below the all-time high of $60.10 it made on August 18—a development that will likely have many breakout traders circling. (Also like LOGI, the implied volatility for MAS’s September and October options is above average.)

Aside from the fact that no trend lasts forever, and today’s smart money can be tomorrow’s dumb dollars, experienced traders know it never hurts to have the winds of larger market trends at your back instead of in your face.

Copper topper. While we’re on the industrial theme: Precious metals have cooled since gold made new all-time highs and cracked the $2,000/ounce threshold last month, but industrial metals have picked up the bullish baton lately.

Actually, it’s more accurate to say they’ve continued to carry it, since copper and aluminum (have you heard about the aluminum can shortage?2) have been rallying for more than five months, but no one seemed to pay much attention when gold, silver, and platinum were grabbing all the headlines.

Chart 2: September copper (HGU0) and October gold (GCV0), 3/18/20–9/2/20. Copper and gold futures price chart. Copper shines brighter.

Source: Power E*TRADE


Aluminum prices are at their highest levels since January after breaking out of a trading range in late August, while the chart above shows that September copper futures (HGU0)—which have outgained gold by 9% since March 18—hit fresh contract highs this week even as gold continued to consolidate.

Market Mover Update: Mattress maker Purple Innovation (PRPL) enjoyed just its fourth up day of the past three weeks on Wednesday, but at yesterday’s low it had fallen nearly 30% since August 4 (see “Sleeper stock wakes up traders”). Online car dealer Vroom (VRM) has gone in the opposite direction in recent weeks, rallying more than 20% since August 13, despite a sharp pullback yesterday (see “Shifting gears”).

Today’s numbers (all times ET): Challenger Job Cuts (7:30 a.m.), Balance of Trade (8:30 a.m.) , Weekly Jobless Claims (8:30 a.m.), Productivity and Costs (8:30 a.m.), Markit Services PMI (9:45 a.m.), ISM Non-Manufacturing Index (10 a.m.).

Today’s earnings include: G-III Apparel (GIII), National Beverage (FIZZ), Broadcom (AVGO), Designer Brands (DBI), Michaels (MIK), Campbell Soup (CPB), DocuSign (DOCU).

 

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1 Barron’s. Hedge Funds Unloaded Tech and Health-Care Stocks. Here’s What They Bought Instead. 9/2/20.

2 CNBC.com. Two under-the-radar ways to play the aluminum can shortage. 8/31/20.

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