backing and filling

I googled this term just before starting to write. I’d thought it had something to do with bulldozers and construction. But it’s apparently an old sailing term, describing a series of rapid changes in direction needed to maneuver through a narrow channel.

In the stock market, technical analysts use the term to describe the behavior of a stock that has just made a big upward move. It tends to zigzag for a while, repeatedly giving up ground and then reversing itself to return to the previous high. The idea is that the stock will be unable to move higher without spending some time around the new high, defining a new base–somewhere well above the stock’s level before the big move but at/below the recent high.

Anyway, that’s what I perceive the first-half market leaders are doing now.

meme stocks?

At the same time, attention has shifted to laggards, at least in good part on grounds of valuation. Buyers seem particularly interested in former pandemic darlings that have since crashed and burned, as well as more mature companies that appear to have lost their way over the past year or so. In the first group, there seems to me to be a bit of meme stock trading involved–that is to say, attacking short sellers.

short covering?

I noticed that the Boston Beer Company (SAM) is up by close to 20% this morning.

I know almost nothing about the company. Yahoo says SAM has a market cap of about $4.5 billion and is trading at 75x trailing earnings. The chart shows the stock peaked at about 3x the current value in early 2021.

The company reported profits that were higher than in the corresponding quarter of last year, even though consensus expectations were for a year-on-year decline. This is apparently what triggered the stock’s rise. My guess is the buying is mostly computer-driven, backed by two ideas–the positive earning surprise, and potential short-covering. What caught my eye is how quickly the stock has gone up by a lot, even though on the surface it appears to already highly valued based on earnings.

Two things: this sort of thing is happening with a bunch of what I’d regard as iffy stocks, and the aggressiveness of the up move suggests algorithmic trading has adjusted to act more quickly and with less price sensitivity.

All this typically suggests the consensus believes the bulk of the market is already fairly priced and that bargains are only to be had in secondary and tertiary ideas.