StockTwits 50, August 13
- Posted by Ivanhoff
- on August 11th, 2012
The price action last week screamed “rising inflation expectations” as loud as it can:
1) The long bond dropped another 1.3%. Let me remind you that its correlation with equities is -0.9, meaning they move in opposite directions. You see, money never sleeps. It constantly moves from one asset class to another. The long bond has been considered a safe heaven for quite some time and funds have been parking cash there. Currently, there is no other more accurate indicator for equity performance than the price action in treasuries ($TLT), which long-term trend is still intact;
2) There was notable rotation from interest rate sensitive sectors like utilities ($XLU) and staples into basic materials ($X, $FCX, $XLB) and energy stocks ($XLE). One week doesn’t make a trend, but it is certainly an important market development worth keeping an eye on.
3) Gold and silver miners had a very strong week and many of them gained 5% or more.
$SPX finished the week just 1% below its 3-year high and it is already up 12% ytd despite half of Europe being bankrupt, China materially slowing down, and U.S. earnings growth stalling. Like it or not, money managers that are underperforming can’t hide anymore in treasuries and low-beta equities that yield 3% and are likely to take on more risk. I am not saying that this is the right thing to do, it is just the most likely given the ultimate goal to keep clients happy by outperforming market benchmarks. Understanding people’s incentives provides solid clues about their likely behavior.
Usually under such circumstances, high relative strength stocks tend to thrive, but this has not been the case so far. The market has been choppy long enough to condition most market participants to expect mean reversion and weak follow-through in breakouts. As a consequence, laggards continue to outperform. There is a new monstrous short-squeeze almost every day. Just today, there was one in $IMPV and $FIO.
For the week, the St50 momentum index appreciated 0.7%, underperforming the S & P 500 and the Nasdaq Composite. Momentum stocks are not leading this rally, which is always a reason for concern and puts its sustainability under question. With that in mind, only price pays and until prices are climbing above rising 50 and 20-day moving averages, the rally is on.
$AAPL is back to new highs despite missing earnings estimates, which only comes to show that its main shareholder base is not thinking only one quarter ahead. The kick off of dividends and the expectations for a new iPhone announcement are likely to provide a strong underlying bid for the stock in the next few weeks. Dips will be bought.
$ASH cleared a new 5-year high and despite the fact that it was on slim volume, the price momentum is behind it.
You can easily follow any or all of the stocks in the ST50 on StockTwits by clicking here.
Have A Great Weekend!
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