StockTwits 50, August 27
- Posted by Ivanhoff
- on August 25th, 2012
A distinctive trait of all market uptrends is sector rotation. When one sector gets tired, another gets the lead, so there is a constant flow of fresh breakouts. On Monday (Aug 20), it seemed that financials were ready to join the party, but $XLF finished the week where it started.
The biggest surprise came from gold and silver, which not only outperformed substantially, but also rallied along with treasuries. It is rarely a good sign when they go up together. The last time that happened was April 10 of this year. Go see the tape of what happened later with equities.
History doesn’t repeat, but it often rhymes. Some say that gold and silver rallied because of rising inflation expectations. From one side we have Europe finally willing to do everything to keep the borrowing rate for Spain, Italy and the likes in a reasonable range. Europe is willing to print. From another side, the Chinese economy continues to flash warning signs of overheating and the sectors most leveraged to Chinese growth – basic materials ($XLB) and industrials ($XLI) – underperformed severely last week.
Treasuries ($TLT) rallied from a rising 200dma. Probably a purely technical bounce, but it still mattered. They are just under their declining 20dma right now. It is really important where treasuries go, because as I have mentioned many times before, they are the other side of equities in the asset rotation equation.
All of this is not something to worry about immediately, but keep it in mind. In my experience, the next sign of an impending correction would be an increase in the number of stocks that drop 15-20% or more in a day. It hasn’t happened yet. The rally is still on.
For the week, the St50 index declined 0.7%. It could have been a lot worse if Friday didn’t save the week. Most of the attempted new breakouts on the list didn’t follow through, which is a warning indicator, but still nothing major to fret about. Many of the stocks continue to consolidate and flag. Top performers on the list were biotechs in the face of $PCYC and $ALXN.
$AAPL finished the week as the company with the highest market cap ever and the stock is not even expensive by the traditional P/E measures. Price trends are sustained by catalysts. Historically, most market winners have only one major catalyst in their life, which is good for a 1-3 year move. $AAPL has been an exception and they managed to come up with new catalysts every couple years or so. On Friday, they won a $1 billion patent infringement case against their biggest rival Samsung. This company doesn’t stop to surprise on the upside.
$ELLI was the worst performing St50 stock for the week after diving to the tune of 10%. Despite the drop, it is still the best performing liquid stock YTD. Last week’s price action was a clear indication of distribution in the name, so taking some of the table here if you have been riding it is not a bad proposition. Take a look at the $ELLI’s chart. This is how many momentum moves end. First there’s is price acceleration (spike), followed by a sudden high-volume decline to a major moving average (in this case the 20dma), where anxious buyers who had missed the trend step up and buy blindly, which results in a low-volume bounce. Then the previous high is not taken out and the stock reverses. A typical scenario that I have seen in many momo stocks.
3D printing stocks $DDD and $SSYS pulled back after reaching all-time highs during the week. Nothing surprising here. They have been quite extended and needed a break to build new bases to give better risk/reward opportunities. Still one of the hottest industries of the year and maybe of the decade.
$KORS managed to build up on its earnings breakout from the previous week and closed strong near all-time highs. Also in the apparel industry, $FRAN and $LULU showed notable relative strength, but they still need to report earnings as typically retail is the last sector to do so.
Homebuilders continue to be among the best performers this year. On the St50 list, $MHO cleared new 3yr high.
You can easily follow any or all of the stocks in the ST50 on StockTwits by clicking here.
Have A Great Weekend!
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.blog comments powered by Disqus