Institutional investors reacted to rising interest rates

Past week recap:

Some institutional investors – probably not the ones that were buyers just the week before – reacted to rising interest rates and the potential for more and larger rate increases this year than forecast, all in response to signs of inflation, by abruptly exiting stocks. This sell-off gained momentum on Friday, leading to the largest single day decline in several years, with most stocks affected.

With this event happening on a Friday we don’t know whether to expect further declines next week or a rally driven by optimistic buyers looking to pick up good stocks at cheaper prices. Although the market has been long due (overdue) for a pause or correction, Friday’s market did have a feeling of being an over-reaction. Will be interesting to see where indexes finish by end of next week.

Large down moves on Fridays are unfortunate for analytics, as they leave weekly data numbers biased to the extreme low side – a kind of “worst case” scenario. Nonetheless, the value of our analytics is that they show it was not outright Armageddon or The Apocalypse, suggesting only about 25% of stocks fell to the extent that a trade is signaled. Most positions remain long holds.

It was definitely a giveback week for subscribers – just how much so depends on whether you were well-diversified with short positions that offset declines, or long-only. We have a greater number of trades this week than usual, exiting longer holds for gain, more recent longs for a loss. A few of our longs did remain flat or even buck the trend, rising significantly to a new high, like LQDT. Most recent shorts set new weekly lows for additional gains.

Highlights: 3 new weekly highs in long positions. 11 stocks with double-digit long gains:

  • EVTC +12%
  • CECO +23%
  • PES +30%
  • BXC +68%
  • FMSA +12%
  • NCI +27%
  • URBN +51%
  • FOLD +15%
  • FTK +15%
  • LQDT +14%
  • NGL +12%

Locking in long gain of +64% in LPSN (46 weeks).

1 new weekly low among short positions. No stocks with double-digit short gain.

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