Market Review:
The short-seller feeding frenzy came to an end this week, and without anybody else to buy, many stocks fell back down to earth.
One clear sign this was a short-covering rally is that momentum stocks never participated. I’ve mentioned this theme several times before, but here’s a unique way to visualize my point.
The chart below shows MTUM in the top panel and in the bottom panel is MTUM’s correlation to the Russell 2000.
For most of the time, both are highly correlated and so the correlation line jogged along near 1.00 for all of last year. However, ever since the New Year, that correlation broke down and has since plunged into negative correlation territory:
In a healthy bull market, the most shorted stocks should indeed rally but, importantly, so too should momentum stocks. For this reason, I consider this strong negative correlation to be a sign that this is not a new, healthy bull market.
Another clue relates to the fact that MTUM today is still closer to its 52-w…