StockTwits 50, August 20

• Posted by Ivanhoff
• on August 18th, 2012

The Nasdaq Composite finished the week at a new 10-year high and the S&P 500 cleared a new 3-year high, proving once again the concept that equities tend to do well in election years. Meanwhile, all eyes are on U.S. Treasuries as they are the other side of the asset rotation’s equation. $TLT dropped another 3% and it is currently right above its rising 200dma, meaning we are currently at an important threshold from both a technical and psychological perspective.

No one is even mentioning Europe anymore. It feels like that bearish news has gone on vacation or simply no one cares about it at this point of time. When stocks stop going down on bad news, often good news is just around the corner or the market has realized that it has probably overdiscounted the worst case scenario. In all fairness, nothing has been solved in Europe and maybe its problems will come back to haunt us later this year, but usually the market gives enough warnings before any major selloff.

In the meantime, the equity market is in an uptrend. New setups are showing up. Breakouts are sticking. Mr. Market is climbing a wall of worry as almost everyone seems underinvested. There are no signs of complacency just yet. On the contrary, everyone is pointing to the low volume and remains cautious. Maybe this is why the market surprised the majority and has kept rising and every dip has been bought.

Everything in the market is cyclical and repeats all the time. Investors psychology goes through the same stages of disbelief, acceptance, euphoria, denial, fear, and apathy. Prices go through the same four stages of accumulation, uptrend, distribution, and downtrend.

If you noticed – the correction didn’t stop until the last group of ex-leaders was harmed in some way, some more than others. Short squeeze plays from laggers outperformed in the first 2-3 weeks of the rally and now momo stocks are taking over.

After certain threshold of benchmark performance is reached, momentum itself becomes the catalyst for higher prices as money managers have to chase. This is the acceptance stage already – an environment where momentum stocks outperform. For the week, the St50 index appreciated 1.6%. The top 10 ranked stocks in the index averaged 3%. There was also healthy sector rotation into the right sectors as retail and tech took the lead from energy and basic materials.

Every new rally has its fresh batch of leaders:

- specialty retail: $KORS, $FRAN, $EBAY…;
- tech: $AZPN $ELLI $ALLT…;
- housing – home builders, mortgage investments, home insurance, REITs, home improvment stores – $COR, $ASPS, $HTH, $MHO, $HD…

Apple ($AAPL) should be its own sector as expectations for its new products have been one of the main catalysts behind the recovery in many semiconductor stocks.

$PCYC cleared another multi-year high, cementing its place as one of the best performers in 2012. It has been on the St50 list for 22 weeks, during which it appreciated 147%. One more posterchild of the power of relative strength as an equity selection method. During the month of May, when the world was coming to an end and most stocks were in a free dive mode, $PCYC stood tall and made an all-time high. Later in the summer, when the market turned north, it significantly outperformed.

$KORS blew away the estimates for a third consecutive quarter and proved that not all IPOs are a bad investment during the first year of their life. But $KORS is the exception, not the rule. In an environment of growth scarcity, fast growing names are getting all the attention of capital and higher multiples with that.

There are some isolated cases of weakness in momentum universe – guns ($SWHC) and dietary supplements ($GNC, $VSI) – why bother with them when there are so many other stocks breaking out.

Some setups that deserve special attention for next week include: $UNFI $MHO $WTFC $AZZ $HTH $ALGN $AZPN $MGAM $TFM $CYBX $TNGO $EAT

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!

St50 Aug 20 New Aug 20 Removed Aug 20 Removed .mac

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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