If happy people pay happy prices, then what prices pay under-invested and under-performing asset managers? I will tell you what price – any price. If the rally in January was born out of an outside catalyst (less bad than expected new taxes), the rally in May has been led by pure momentum and fear of missing out, where managing career risk has gradually become more important than managing market risk.
Every couple weeks or so, bears show up and boldly try to call a top, acting like we don’t remember the last time they made the same call. You saw the ton of posts on the potential QE tapering last weekend and the potential negative consequences for equities. Guess what? There is no difference between being early and being wrong, depending on your time-frame of course. If your timeframe is eternity and you don’t take into account opportunity costs, then eventually you will be right – if this is what is important to you. I’d rather make money.
There are two type of markets – trending and range-bound and they come after each other in an endless cycle. Our job is not to complain about divergences and to ponder on the potential impact of central banks’ monetary policies. Our job is to take full advantage of healthy markets and to manage risk.
All stocks that consolidated sideways for the past two to four weeks are breaking out, one after another. This is what happens in trending markets. Price momentum is the catalyst. The fear of missing out trumps the fear of losing. They say that happy people pay happy prices, but bull markets persist because people don’t believe in them. Bull markets climb the proverbial wall of worry. People say that they don’t want to chase and yet corrections last a couple hours. The slightest dips are getting bought.
A bull market will bail you out and it will forgive your mistakes, but if you really want to outperform, you either have to pay attention to sector rotation or have the discipline to stick with your winners long enough to make a difference. When there are so many good looking technical setups out there, it is enticing to jump from stock to stock and chase after multiple small percentage gains. But looking back you will realize that this is not the wisest approach.
Refiners ($TSO, $CVI, $PSX…) and oil & gas svs ($FTI, $COG…) stocks started breaking out on Friday. Many of them are still close to their bases and it seems like the next beneficiary of an ongoing sector rotation, so you might want to pay attention to this sector. The success rate of breakouts will depend a lot on the price action in crude oil.
It is absolutely amazing how energy and basic material stocks could stay near multi-year highs given the strong price action in the U.S. Dollar. Other cyclicals have also been extremely strong – financials, homebuilders, industrials, even semi-conductors under the surface.
Short squeezes continue with full force and happen even in stocks with questionable fundamentals. In fact, big short squeezes always happen in stocks with questionable fundamentals. Their short interest would not be high, if everything was dandy there. I guess this is one of the reasons why two of the most controversial industries of the past few years have been leading in the past month or so – solar and education stocks.
There is always something to worry about. Yes, it is getting a little frothy out there with recent IPOs running wild. By no means, it is “1999-kind of” wild. Actually, IPOs outperforming is a good sign of risk appetite.
The new all-time high list is super-diverse and the number of stocks making annual highs is at levels last seen in 2010. Usually extreme levels lead to some form of mean-reversion, but trends could continue longer than contrarians can remain solvent. And as we have talked multiple times on this site, sometimes being a contrarian means staying with the underlying trend.
Knowledge is to know what you have to worry about. Wisdom is to know when it matters.
For the week, the St50 index appreciated by 1.8%. Quite a few of the St50 stocks are extended after the move they had in the past three weeks. A consolidation of some form, through price or time won’t be a surprise. Some of the better risk/reward setups from the list for next week include: $COG $AMBA $MELI $FTI $PNRA $MANH $CMG $EFII $GNC $EVER …
You can easily follow any or all of the stocks in the ST50 on StockTwits by clicking here.
Have A Great Weekend!
Yelp ($YELP) is a currently sitting very close to all time highs and also has a high short interest. As we have seen in the past couple weeks, this is a deadly combination. Short squeezes have been happening everyday and the ones breaking out to new highs have been the strongest ones. Yelp has also digested the gap up very well, trapping even more shorts that were short before that without a way out. There appears to be strong demand for Yelp and as long as it holds the gap (or about $29.60), it is in the game for a short squeeze to all time highs and more. This is Yelp’s first week on the StockTwits 50 List and it is currently ranked number forty-seven. Earnings are on July 31st. Click to enlarge chart.
Post By: @BenCBanks
St50 Technical Spotlight – Cabot Oil & Gas Corp.
Posted by BenCBanks on May 19th, 2013 at 10:50 am, Comments: 0
Cabot Oil & Gas Corp. ($COG) is currently trading just a few dollars off all time highs in a sector that appears to be receiving the next [...]
St50 Technical Spotlight – Electronics for Imaging Inc.
Posted by BenCBanks on May 15th, 2013 at 8:55 am, Comments: 0
Electronics For Imaging Incorporated ($EFII) has been trending higher for multiple years in a stair stepping fashion. Recently it has pulled back to a rising [...]
St50 Technical Spotlight – GNC Holdings
Posted by BenCBanks on May 12th, 2013 at 10:50 am, Comments: 0
GNC Holdings ($GNC) has been stair stepping higher all year providing many successful breakout entries. GNC Holdings has now set up again for a breakout to all [...]
StockTwits 50, May 13
Posted by Ivanhoff on May 11th, 2013 at 11:41 am, Comments: 0
This continues to be one of the most feared rallies of all times. Coming into 2013, 99% of the world’s strategists were overwhelmingly bearish and [...]
St50 Technical Spotlight – Monsanto Corporation
Posted by BenCBanks on May 8th, 2013 at 8:55 am, Comments: 0
Monsanto Corporation ($MON) has without a doubt been a laggard this year but as this market continues to grind higher there will be rotation in [...]
St50 Technical Spotlight – Gap Incorporated
Posted by BenCBanks on May 5th, 2013 at 10:50 am, Comments: 0
Gap Incorporated ($GPS) broke out to new highs on Friday along with the major indexes. What makes Gap different from the indexes is the relative [...]
StockTwits 50, May 6
Posted by Ivanhoff on May 4th, 2013 at 10:52 am, Comments: 0
You have heard the Wall Street aphorism “Sell in May and go away”. It is still too early, but so far the only things that [...]
St50 Technical Spotlight – Proto Labs Incorporated
Posted by BenCBanks on May 1st, 2013 at 10:50 am, Comments: 0
Proto Labs Incorporated ($PRLB) gapped up on February 13th and has since consolidated sideways for more than two months. Recently Proto Labs has begun to peak it’s [...]