StockTwits 50, October 1
- Posted by Ivanhoff
- on September 29th, 2012
Last week brought an overdue pullback in most stocks. The St50 index declined 1.47%. Some stocks held better than others. Tech and homebuilders suffered the most.
$XHB (the homebuilders index) dropped 4.2%, but even with that loss, it is still up more than 20% for the past 3 months. This year’s story of homebuilders is an interesting one and worth telling as it reflects what is typical for most industry-wide moves.
Financial market are discounting mechanisms, but that doesn’t mean that they are always right about the future. Here is how the whole process often works. Market discounts certain thesis. For example, near the end of 2011 and the beginning of 2012, we saw many home builders, home improvement stores, regional banks, home insurance stocks and real estate REITs showing up on the 52-week high list. It was a clear sign that someone out there with enough buying power was expecting a recovery in the U.S. housing market. Price action (expectations) was leading fundamentals. At the time, the data from the housing sector was still terrible. Many even believed that it is heading for a double dip. As time went by, the news flow gradually started to confirm the market thesis and every new piece of positive data was a catalyst that drove prices even higher.
8-9 months into 2012, the results unequivocally show that there’s a notable improvement in the housing sector. Over the last few weeks, all major papers and media broadcasted that on their front pages…and naturaly some profit taking came. The people with the original thesis for housing recovery have realized that they were right all along and now everyone knows about it. Of course, they will use the enthusiasm caused by the media to lighten up and lock in some profits. This isn’t to say that housing stocks can’t continue to perform well as price and earnings momentum are still behind them.
It is still a market of stocks and last week brought quite a few breakdowns in momentum stocks. Pullbacks in recent leaders always look appealing, especially to the crowd that missed the initial move. Be careful there, because buying on weakness could often put you at a disadvantage from a psychological perspective. Catching the exact turning point of correcting stocks is a tricky business. The odds are that you won’t be able to do it and initially you will see your new purchases in red. And as the saying goes, if they don’t scare you out, they will wear you out.
The recent pullbacks in 3D Printing stocks ($DDD and $SSYS) is a good illustration of this notion. Last week, $DDD looked like a bargain to many at $35. Well, the stock finished the week below $33. Those who didn’t get scared out and cut their losses, are currently under water. The longer they are in red, the higher the probability that when $DDD recovers above $35, they will be quick to sell, because they would have been tired of holding to a losing position for an extended period of time. So they are likely to sell early and rob themselves from the opportunity to get paid properly for the risk taken. Proper buying is crucially important.
The good news is that there are still quite a few stocks that are looking healthy:
Cloud Software stocks were among the best St50 performers as $N, $ULTI and $EQIX gained more than 3% for the week. In absolute terms, it doesn’t seem like a lot, but given the spanking that most tech stocks received, it is a notable achievement.
$AZZ gapped to a new all-time highs on strong guidance. It has been on the St50 list for 6 weeks already for a 16% gain. It looks extended at this point and it needs time to consolidate its recent gap.
Regional banks had another strong week. $TCBI reached another all-time high.
$RGLD continues to climb above its rising 20dma.
$TFM, which in one of the organic food plays on the list, managed to establish firmly above its rising 50dma. It won’t be a big surprise if it retest its all-time highs by the end of the year.
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