Is there always a bull market somewhere?
Jim Cramer of CNBC’s Mad Money show keeps saying, “There is always a bull market somewhere..”. We set out to validate this hypothesis with Researchfin.ai.
The state of global markets in 2022 has led even experienced traders to dip their toes with caution. Needless to say, it is scary to wrestle with a bear for the 20 million new traders who started trading on their own during the pandemic. After a phenomenal bull run that lasted for more than a decade, and was actually accelerated by the pandemic, the markets are now showing serious weakness amidst the global political and economic environment following the pandemic. S&P 500 is having the worst start to the year since 1939!
While the increased volatility can be a good thing for short-term traders like scalpers, day traders, and even swing traders who are playing on the short side, but, for someone just starting out on their trading journey, this is the equivalent of university-level work for elementary schoolers.
However, if Jim Cramer is right, all that new traders have to do is shift their focus from the proverbial growth stocks to search for the new bull market somewhere else!
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For the demonstration purpose here we will go with US Equities but this approach to research is applicable to any other asset class as well. So, let’s start our research…
We form an initial hypothesis of what a bull market would look like. The most obvious thing is that an asset will be making newer highs in a bull market. So we want to look for stocks that are closer to their 52-week highs. Let’s start with that query on Researchfin.ai.
We get quite some results here.
But this tells us that while there are probably many companies across different sectors closer to their 52-week highs, there are possible anomalies there that make it harder to find a common theme needed to detect if and where a niche bull market exists. For example, we want to eliminate instances like the following where the price hasn’t changed much in the past year and so they are always closer to their 52-week high. Obviously, this doesn’t help our research.
We definitely need to include some additional criteria that can help us narrow our search better. Let’s add more criteria to our hypothesis. We don’t want the price to be flat and want it to be trending up. So that can be the second criterion.
Now, this is getting us somewhere. But there are still too many results.
And there are instances like the following that still manage to sneak into our filtering criteria. The following doesn’t help our hypothesis as it hasn’t been showing much relative strength within their group. Relative strength shows how a stock has performed in comparison to the rest of the market in a given period of time (the default time period used is the past 12 months but this can be changed as well).
So maybe we add that criterion as well to identify those that are showing high relative strength.
This is getting better now but still the results are a bit too many to conclude anything yet.
Also, we see some instances like this where the earnings are declining.
We would ideally like to see double-digit earnings growth. So let’s add that criterion.
Finally, we are narrowing down the list and it is starting to look better.
But one last thing though. We would prefer to see companies with double-digit revenue growth go with their double-digit earnings growth. Let’s add that criterion as well.
Now we have a much-focused list.
How does the above help us validate if there is always a bull market somewhere?
As we can see here, there is a common theme in the stocks that made the final cut. We see that most belong to the Energy Sector and specifically to the Oil Industry.
This is great because even expert traders and industry professionals agree that’s where the current bull market is for the US equity market.
Researchfin.ai offers an AI-based financial market intelligence platform for retail traders. We are an invite/referral-only platform at this point. You can request an invite or learn more about us at https://www.researchfin.ai
