StockTwits 50, October 22
- Posted by Ivanhoff
- on October 20th, 2012
The market correction is still underway, despite the technical bounce in $SPY earlier this week. It is a low-correlation correction so far, but don’t all corrections start that way? Low correlation means “market of stocks” environment, which provides good opportunities on both the long and short sides.
Tech stocks continue to be a heavy burden for the market and lead on the downside. The Nasdaq Composite staged two more distribution days and it is already back to its rising 100dma where it could find some technical relief.
Defensive names are outperforming – which is rarely a positive sign. The bright side came from the usual suspects: biotechs and anything even remotely related to the housing sector – home builders, property insurance, regional banks, and home improvement stores.
Retail numbers weren’t too shabby and staged quite a few breakouts to all-time highs among apparel clothing stocks. However, the gravitational forces from the general market pullback later in the week brought them down. It seems those stocks need a new catalyst – either strong earnings report or a general market rally that will “lift all boats.”
The recovery in some of the basic material and energy names continues. Add to that picture the deterioration in U.S. Treasuries and one could say that the market is starting to discount rising inflation expectations in a way. Of course, I don’t want to make any major macro conclusions based on a few weeks of price action, but I am carefully watching the developments there.
For the week, the St50 momentum index lost 2.44%. Don’t forget that momentum stocks are a favorite short target during market corrections, especially when their trend is broken. This is where valuation comes to play. On the way up, it has little meaning as buyers look into the future potential of the company and don’t really care about current valuation. As long as the price trend is intact, valuation doesn’t matter. Things turn 180 degrees once the trend is broken. Long momentum investors are out or exiting. Some trend followers are even reversing their stand and going short. At the same time, valuation is still too steep for value investors to step in. There are simply no buyers, except for “weak hands” who buy blindly, assuming that any stock that is 20% below where it was a month ago is a bargain and never expecting that things often get a lot worse before they get any better.
You could say a lot about current market sentiment by the way it reacts to earnings reports and in the short-term perspective mood trumps fundamentals. Four St50 stocks reported and only one saw a positive reaction – $EBAY. Two of them – $MLNX and $ALGN – were devoured by losing 25% of their market cap overnight.
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