StockTwits 50, July 23

• Posted by Ivanhoff
• on July 21st, 2012

Just when Europe has been waning from the front pages of financial media and earnings season took center stage, the region of Valencia asked the Spanish central government for financial aid. The Spanish 10-year sovereign bonds’ yield passed 7%, spooking investors across the world that Spain might need a full-scale bailout.

Over the past two years, the major forces that have driven equity markets have been the relentless underlying bid in the face of central banks’ willingness to pump all the liquidity needed and headline risk coming out of Europe. For the most part (excluding brief periods in the second half of last year), it has remained a “market of stocks” environment, where stocks on the all-time high and all-time low lists have been there for a good reason.

The S & P 500 and the Nasdaq Composite finished the week positive, both gaining about 50 basis points. Under the relatively calm surface, there were some wild moves in both directions. About 50 liquid stocks went up 10% or more for the week and about the same went down 10% or more. The slow summer in the midst of an earnings season has certainly contributed to an increase in volatility.

The St50 momentum index lost 0.89% on average, despite having one huge positive outlier in $MLNX that gained more than 30%. $MLNX is yet another example that the market has a hard time properly valuing young, fast growing companies. P/E is not a good criteria to measure how expensive a momentum stock is. It is just an indicator of market expectations. Just like a low P/E alone is never is good reason to buy a company, high P/E itself is not a good reason to sell one.

Growth stocks tend to outperform value stocks when growth is scarce. We are exactly in this type of market environment, where there are very few solid growth names and they take all the market’s attention…and money. Perceptions for future growth is more important than current growth as this year’s performance of 3-D Printing stocks has once again proven.

Last week, I opened the theme about old leaders being decapitated one by one. Sure enough some of the last remaining leaders of the last two year’s rally – $WFM, $ISRG, and $CMG – took quite a beating. $CMG was removed from the St50 list a few weeks ago as it showed some signs of weakness. Judging by the market reaction, its slowdown in sales growth was a big surprise.

Intuitive Surgical ($ISRG) reported another excellent quarter with decent growth numbers, but at this stage of its price cycle that was not enough for the market and it dove 8% to its rising 200dma. Its long-term uptrend is still in place, but the market reaction to a relatively good report is certainly concerning. Remember, the market is a forward looking mechanism that tries to discount future events. As a consequence, it sometimes discounts events that never happen, but nevertheless discipline should always trump conviction in any investing or trading process.

Whole Foods ($WFM) shed 11% in a heavy volume. This was its biggest weekly drop in 5 years and it basically erased the gain from its last earnings report. $WFM is still holding above its rising 200dma, which has been the case for the better part of the past three and a half years.

Many other food and restaurant stocks gave up positions during the week as the market hurried up to discount the potentially negative consequences of rising grains prices. $SNAK was a rare exception and finished at all-time highs.

Other stocks that showed notable relative strength and closed near multi-year highs include: $EBAY, $ALGN, $CSOD, $ULTI

The recent volatility in the markets has brought back questions about the existence of St50 for short setups. For good short ideas, look no further than the old issues of the St50 for stocks that have lost their place on the list and broken their trend. Some trends last six months, some last three years, others go for a decade, but sooner or later they all end and it is not pretty what they do. As the saying goes, 80% of the big stock market winners give back 50% of their moves. 50% of them give back 80% of their moves. Trust me, you don’t want to practice knife catching on the other side of momentum mountains.The difference between a good momentum investor and a great momentum investor is that the latter knows how to protect gains and mental capital. Having an exit strategy has a lot to do with it.

The market is always interesting. There’s constantly something going on. Money never sleeps and it always is in the process of discounting something. The breadth on the all-time high list is rather poor. High-dividend defensive and biotech names are still the main tenants. The past few months have brought an increasingly challenging market environment with multiple changes in sentiment and direction. An environment, where you have to be really nimble and don’t overstay your welcome in any position. Apple ($AAPL) reports next week and given that it has recently accounted for the majority of the S & P 500 earnings growth, all eyes will be on it.

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 23

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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