StockTwits 50, May 14
- Posted by Ivanhoff
- on May 12th, 2012
Another crazy week is behind us. Correlation is rising and with it the trendless choppiness in the market. Defensive plays like treasuries ($TLT) and utilities ($XLU) are gaining popularity as the protection of principle is becoming a priority over risk taking.
There were five gaps in the market benchmarks last week – four of which were faded – reflecting the market’s confusion and accelerating traders’ frustration. Highly correlated markets can be quite volatile as macro-related catalysts overshadow earnings reports.
Just like last year, Europe is on the first page again and the market has no idea what the potential implications could be. One of the side effects of elevated uncertainty is lower multiples and many of the momentum stocks have felt the drop in market confidence over the past month or so. Mood matters in the market as happy people pay happy prices and scared people just want out.
For the week, the St50 Momentum index depreciated 1.27%. The S & P 500 declined 1.15%, the Nasdaq Composite lost -0.76%. As it is often the case, indexes hide more than they reveal. Under the surface, there is some serious carnage going on.
Any stock with outsized exposure to Europe is in the process of getting repriced via a much lower multiple. The St50 list has managed to escape most of the big sell-offs last week. The worst performers came primarily from tech stocks that pulled back after strong earnings breakouts: $TIBX, $WWWW, $FIRE, $VMW.
The most notable industry move last week came from the biotech sector ($IBB), which gained almost 4% and is hovering near an all-time high. Keep in mind, this might not be the best time to get overly excited about the industry’s relative strength. The last two times we saw this similar divergence from the general market, it did not lead to a follow-through. There are only two biotech stocks on the St50 list – $JAZZ and $PCYC.
The best performer on the list came in the face of nutrition retail chain $GNC, which bounced from its rising 20-day moving average on the back of strong earnings from one of its competitors – Vitamin Shop ($VSI). Wall Street thinks in terms of investing concepts and sometimes the strength of one stock could be beneficial for its whole industry.
Monster Beverage ($MNST) beat its earnings estimates for the n-tienth time, reminding us why it is considered one of the best performing stocks of all-time. It is up more than 280 times over the past 10 years.
$SXCI, which provides application software for the healthcare industry, bounced on high volume from its rising 20dma. It is one to keep a close eye on over the next week.
$PCYC tried to break out on Friday, but the general market weakness in the late afternoon slowed it down. Meanwhile, $EBAY is back near new 3yr highs. With Paypal becoming a major player in mobile payments and online sales growing, it has powerful catalysts behind its back.
Other stocks that are still trading near all-time highs and therefore deserve special attention include: $CATM, $CYBX, $ARBA, and $SYNT.
The number of momentum stocks that look technically vulnerable in the short-term is growing. Some of the names to be aware of are: $AAPL, $CMG, $V, $SBUX, $UA.
This is not a “let your winners run” environment. Gains are short-lived, breakouts are vulnerable, and mean-reversion trades from overbought and deeply oversold conditions offer higher probabilities of success. The trendless choppiness could frustrate even the most experienced traders. You have to be really nimble if you want to time the current market.
See the daily charts of the St50 stocks on finviz; also weekly charts. Take a look at the About section to gain my perspective on how to use the St50.
You can easily follow any or all of the stocks in the ST50 on StockTwits by clicking here.
Have A Great Weekend!
~ Ivan Hoff (@ivanhoff)
St50 May 14 New May 14 Removed May 14
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.
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