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How One Trader Is Playing Small Caps and Apple Amid Market Rotation


The stock market's wild ride this week has one trader updating his portfolio positions. founder Todd Gordon told CNBC's "Trading Nation" on Thursday that three trends in the market rotation inspired him to shift gears.

Stocks notched records Thursday on hopes around stronger-than-anticipated employment data and increased political clarity after Congress confirmed Joe Biden's election to the presidency and control of the Senate has shifted to the Democrats.

But the fabric of the market was changing. Bond yields soared to their highest levels since late March, solar stocks surged on the prospects of clean energy legislation and large-cap growth stocks took a bit of a back seat to smaller- and mid-cap value names, Gordon said.

Here's how he was navigating all three trends:

Bond yields soar

Rising bond yields tend to benefit financial stocks, and small-cap financials appear to be in a particularly strong position, Gordon said.

"If there's more stimulus, more aid coming to small businesses, obviously, that's going to be good," he said. "Small-cap strength is indicative of underlying strength in the economy."

His top pick was a mid-cap regional bank stock, Zions Bancorp, which recently broke through some downtrend resistance at around $49 a share.

That resistance should now become support, Gordon said, adding that the stock's momentum trends are also strengthening.

"I'm going to go ahead and add a position right here," he said. "If we break below 48, I'll start to get nervous and then if we do get back below 43, I will cut the entire position."

Solar stocks surge

Gordon also wanted to add to his position in the stock of solar panel maker Sunrun as renewable stocks surged in anticipation of President-elect Biden's focus on clean energy policies.

"This one has performed extremely well," Gordon said. "We have broken out through resistance at about 82 right here. We're trading at 93. If you don't have this one yet, don't go all in. I would start to piece in here."

Because he already had a position in the stock, Gordon bought fewer than 100 shares.

"I do like to add to winning positions, but don't add more shares than what you originally bought because you're going to hurt your average price too much," he said.

Large caps vs. small caps

As investors slowly warm to smaller-scale trades, Gordon was also looking to protect one of his larger positions.

"We are seeing pretty good rotation out of large-cap growth and into smaller-cap and mid-cap value, but also, we're not seeing a complete abandoning-of-ship of growth," he said.

As such, he wanted to shield his position in Apple in case Big Tech eventually rolls over.

"I'm a little concerned with Apple's kind of double top up here at about 138," he said, adding that its daily and weekly momentum indicators are growing weaker.

"Large-cap tech is obviously falling out of focus. We'll see what kind of antitrust and regulation activities are coming down the pike here. So, I want to start to protect some of my Apple," he said.

Gordon did that by selling Feb. 5 calls around the $138 level, where Apple shares appeared to be topping out.

Disclosure: Gordon owns shares of Zions Bancorp, Sunrun and Apple.


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