The rule of thumb is that markets spend 20% of their time trending and 80% is occupied by a range-bound consolidation. Last week was an example of the former. Market is still in a correction mode and its decline accelerated.
The elections are over and with them the uncertainty that the intermediate future usually brings has dissipated. Historically the first year of a presidential cycle has not been favorable for equities, as it coincides with the time when unpopular decisions are taken.
It seems market is already discounting a potential expiration of Bush Tax cuts next year. If taxes on long-term gains increase from 15% to 20%, it only makes sense for some liquidation to take place now. It is a tactical adjustment that maybe explains the recent weakness in stocks like $AAPL.
The biggest surprise last week wasn’t the decline in equities, but the divergence between Treasuries and Gold. The former thrive when deflationary expectations are rising, the latter outperform when inflation expectations are on the rise. And yet, last week both $TLT and $GLD surged, which in my mind is a reflection of market confusion and declining risk appetite. The last time we saw such divergence was in April 2012.
$GLD and $SLV are still below their 50dma and look vulnerable from technical perspective, but if you take a look at the miners, there were quite a few 52-week highs last week and some decent setups – $AG and $SLW in particular.
For the week, the St50 momentum index lost 1.85%. The best performers on the list came from the good old 3D-printing industry. $DDD and $SSYS continue to surprise with their resilience. There is a strong underlying bid for both of them and any dip is welcomed as a buying opportunity.
Gun and ammunition stocks $RGR and $SWHC had quite a boost in a week when the rest of the market fell apart. They are among the best market performers for the past two years. Price appreciation has certainly been backed by strong earnings and sales growth numbers, but the latter have been fueled by fear of stricter gun control under Obama’s administration. I could not say how rational those fears are, but prices change when perceptions change and in this case market is discounting stricter gun control.
$CRAY raised revenue guidance and shot back near all-time highs.
$WFM barely met Wall Street’s earnings consensus and gapped down near its rising 200dma, where buyers showed up.
Markets are still in a correction mode, which means that most of the breakouts are prone to a failure. Nevertheless, one must remain flexible and prepared for when the tide turns. Here are some setups that deserve attention: $CVLT $MIDD $SPNC $KBALB $INTU $CERN $AZPN
You can easily follow any or all of the stocks in the ST50 on StockTwits by clicking here.
Have A Great Weekend!