StockTwits 50, December 3

on December 1 | in st50table, StockTwits 50 | by

The indexes ($SPY and $QQQ) are at an important juncture – right at their declining 50dmas. An immediate pullback makes sense given the territory markets have gained over the past two weeks. A consolidation of some form might seem natural, but it does not mean that it will necessary happen or it will be too deep. The price action on Wednesday (November 28) was quite a tell about the underlying bid in this market. $SPY gapped down – at one point in the morning it was 1% in red – and yet managed to finish the day 1% above the surface. That was one hell of an impressive recovery.

During the first major leg down of a market correction, there is a very high correlation, meaning most stocks go down together disregarding their individual situation. It is fear, forced liquidation, and redemptions that drive the market. During the initial stage of recovery, correlation remains high and mean-reversion trades outperform. But what happens next? We are entering into a “market of stocks” environment with elements of sector rotation. All major market lows are usually tested and sometimes pierced. In no way I suggest that this will be the case this time. As I mentioned already, there seems to be a strong underlying bid in this market. What is important to point out is that during that test, there are a lot less stocks making new 52-week lows and a lot more making new 52-week highs – meaning correlation is a lot lower and stock picking matters again.

What are the two main general catalysts driving investors’ decision-making right now (other than price itself of course)? What are the major market developments that are all that matters at least until next earnings season, which will offer a glimpse into the current economic reality?

- Budget discussions about the so called fiscal cliff. It seems the market has already discounted it, just in case. The same could be said about many corporations, given the conservative nature of their 2013 earnings and sales outlook. If there is a deal of any type that comes with favorable taxes, this market will rally 10% by the end of January;
- Special dividends – I know, paying them doesn’t change the business situation of the company; it even makes companies weaker as they have less cash or higher debt. Keep in mind that there have been more than 70 companies since the end of September so far that have declared a special dividend – this is a stunning number (almost 5 times bigger compared to the same period in 2011). We are talking about a ton of money given back to shareholders. This is totally altering the current supply/demand dynamics in the market. We simply don’t know who will be the next company to declare a big special dividend. It could be anyone. Even companies that are cash strapped could go and just borrow in this super low-interest rate environment. The fear of missing out on a big dividend is what is keeping many funds invested in the market and short sellers sleepless.

For the week, the St50 index gained 0.8%. The usual suspects led – 3D-printing ($DDD and $SSYS) and guns ($RGR and $SSYS). They have gotten a little bit ahead of themselves and a consolidation through price or time is absolutely natural here.

$EBAY reached levels not seen since 2004 on stronger than expected Cyber Monday numbers.

$V, $ARMH, and $TSM seem to be making all-time highs every other day if not more often.

$CRAY and $CVLT broke to multi-year highs from a decent base. The price/volume dynamics of their move point to clear accumulation from institutions.

$TFM and $LZB missed earnings estimates and were quickly punished – one more sign that we are in a “market of stocks” environment, where proper equity selection matters.

Here are a few setups to pay a particular attention to next week: $QIHU $URI $EME $RNF $AZZ $APZN $DK $KORS $SIRO $AMGN $ASPS $MIC $IFF

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.

Don’t forget to check the daily Momentum Wrap I do around stocks hitting new all-time and 52-week highs.

Have A Great Weekend!

Latest St50 List – Sheet1 (1) New Dec 3 – Sheet1 Removed Dec 3 – Sheet1

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