1/ Small Caps Under Accumulation
2/ ACVA is Leading a Turnaround in Used Car Prices
3/ Net Highs on the Nasdaq Support Higher Prices
4/ AZEK Building Supplier Preparing for Much Higher Prices
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1/ Small Caps Under Accumulation
Despite dramatically underperforming all major indexes throughout 2023, the Russell 2000 small-cap index has begun showing signs of accumulation. The Up/Down volume ratio in the chart below identifies net buying over a 50-day period with a value greater than 1.0. As you can see, all prior corrections occurred with an associated drop in the Up/Down volume ratio below 1.0. This recent May correction had a different character and occurred with a backdrop of the ratio holding above 1.0. Coincidentally, legendary investor Stanely Druckenmiller just recently disclosed his new largest position to be call option on the Russell 2000.
2/ ACVA is Leading a Turnaround in Used Car Prices
COVID caused many never-before-seen situations, one of which was a surge in used car prices and the odd situation where you could sell a used car for more than a new car’s list price. ACVA is attempting to redefine the wholesale used car market by bringing transparency to an incredibly opaque market.
Management intelligently came to market with an IPO near the top of the used car market euphoria, leaving buyers of the stock with quick losses. Management has now forecasted in their recent quarterly update that they anticipate the market will finally begin to improve later this year. It appears investors believe them as the stock is close to a breakout from a classic cup-with-handle chart pattern and may once again be a leading indicator for used car prices.
3/ Net Highs on the Nasdaq Support Higher Prices
Having discussed net highs for the precious metal mining sector in yesterday’s note, today we turn our attention to the Nasdaq. Similar to precious metal stocks, the Nasdaq is currently witnessing more stocks making 52-week highs vs. those making 52-week lows, resulting in a Net-positive number. This can be seen by the green columns below the chart.
This positive reading continues to indicate that investors remain net buyers of equities and supports the notion of a continued uptrend for the Nasdaq.
4/ AZEK Building Supplier Preparing for Much Higher Prices
It is expected to see a strong inverse relationship between the 30-year fixed mortgage rate and demand for building supplies. Therefore, the rise and fall of AZEK, a leading low-maintenance building products supplier, with the trends in mortgage rates seem appropriate. However, this relationship has recently diverged.
Despite the increase in mortgage rates in 2024, AZEK has maintained its powerful gains from 2023. Looking past recent trends, AZEK has returned to test its 2021 all-time highs despite the mortgage rate having more than doubled since that time. This is likely supported by strong demand for its products, which will only increase should mortgage rates fall and boost building demand. A breakout in AZEK accompanied by a drop in mortgage rates will likely result in much higher prices for AZEK.
About This Week’s Author
Matthew Caruso, CFA, CMT is a member of the CMT association, having previously served as the president of CMT Canada. As a professional investor and former market-maker, he boasts an impressive track record, including holding the 9-month record in the US Investing Championship. Matthew’s expertise extends to Caruso Insights, a dedicated service aimed at educating investors on constructing and refining high-growth investment strategies. To explore his insights further, visit Caruso insights.com.
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Originally posted on May 22, 2024
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