For months, I've been telling you that the markets are headed higher.
A side effect is that they would likely take some of our targeted brick-and-mortar retail losers higher as well, making those crappy stocks appear ripe for a real turnaround.
That's exactly what we've seen - an across-the-board rally that's inflating the stocks we know are headed south.
Today, I want to take a deep dive into the market rally, tell you why some crappy retail stocks are going along for the ride, and show you why they will not continue to rise with the rest of the markets.
Let's get started...
Why the Rising Tide Is Lifting These Sinking Ships
Generally, market rallies are led by a handful of so-called "leadership" stocks that get a lot of attention and capital thrown at them. As benchmarks go higher and higher, they are led by leadership stocks, which can consist of a group or a couple of groups doing the heavy lifting. Since November, they have been the big tech names and bank stocks.
Along for the ride, a lot of the ugly-duckling and left-behind stocks start to look like bargains compared to the big names.
What eventually happens is something called a "rotation."
Investors rotate into "cheaper" stocks when their allocation into leading stocks looks a little too fat. That happens when the prices of the winners leading markets higher rise; the relative weight of those holdings in a portfolio makes them look heavy. There's a lot riding on them.
Institutional managers start looking for cheap stocks, or "value stocks." While there's a difference between cheap stocks and the real value stocks, what matters to investors is their potential to get drawn into the rally.
In a rotation move, cheap stocks get bid up, hopefully enough to draw the attention of other investors who see them on the move. Those investors buy them, believing that as the market continues to rise, those stocks will continue to attract capital until they are no longer cheap.
That's just how a lot of long-running rallies play out. It's what we're seeing now, and why some of our favorite short targets are getting bid up. They're looking better these days, regardless of whether or not these companies deserve it.
But it won't last...
The Rally Is Showing Some Weakness
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.