StockTwits 50, July 16

There is a saying that a true correction is not over until the last batch of the stocks that led the previous rally is brought to its knees. Judging by the St50 index performance last week (-2.9%), this process might be underway.

The S & P 500 managed to barely finish positive for the week due to a strong comeback of the financial sector on Friday, but overall last week brought more damage than constructive action. The long bond outperformed by a wide margin, gaining 1.65%. Software and industrial stocks ($XLI) took some heavy beatings as expectations for slowing corporate spending scared money away from these sectors. Several earnings warnings from big players ($CMI, $INFA) raised a yellow flag. The stock market is a forward looking mechanism and it doesn’t wait too long to discount any clues for major changes.

There are some bright spots in the market. I don’t know if the housing sector is finally recovering, but the stock market has been discounting that for awhile. Everywhere I look, there are signs of rising market expectations and prices don’t change, unless expectations change. Rents all over U.S. are near all-time highs, so are REITs. Home builders ($LEN, $TOL), home improvement stores ($HD, $LL), credit check services ($EFX), real estate websites ($Z), mortgage and property insurance companies ($HCII), regional banks ($TCBI, $OZRK), property developers ($COR) are substantially outperforming the rest of the market and exhibiting notable relative strength. Even JPMorgan and Wells Fargo confirmed better than expected mortgage origination numbers on Friday. Price action talks.

Warren Buffett likes to joke that he tries to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will. There are very few such industries, if any.

There’s usually a high correlation between stocks belonging to the same industry; hence the saying stocks move in groups. This is not always the case and a glance at the recent performance in the grocery stores’ industry is a good enough tell. While the likes of Supervalue ($SVU) and Safeway ($SWY) are struggling, deep discount giants like Walmart ($WMT) and Target ($TGT) and even higher-end organic food supermarkets like Whole Foods ($WFM) and The Fresh Market ($TFM) thrive near multi-year highs. Products and people eventually matter more than the industry itself.

Speaking of organic food, this has been a theme with accelerating presence on the St50 list. In addition to $WFM and $TFM, there are three other stocks representing the group: $HAIN, $UNFI, and $SNAK.

As mentioned earlier, there is new leadership showing up in the face of housing-related and healthcare names, but it is way too early to get excited. The 52-week high list is still littered with defensive stocks, which is never a sign of confidence or risk appetite.

Here are some setups to watch next week: $SYNT $LF $TRIP $HCII $HAIN $AVD $EAT $DNKN

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)

Download the list: St50 July 16 New July 16 Removed July 16

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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