The relentless rally continues, spreading across more and more industry groups. Everything is rising, with the exception of $AAPL and gold miners. The catalysts? Maybe it is pure price momentum and hedgies chasing, being afraid not to miss another rally and underperform again. Maybe it is a transfer of capital from fixed income to equities under way. Data says so. Maybe, earnings so far have come much better than expected. Maybe it is short squeezing of all stubborn. Maybe it is all of those things taken together.
For the week, the St50 Momentum index gained 2.05%. A lot of the names look quite extended. $FEIC, $NXPI, $FNGN, $IFF etc. are up four to eight weeks in a row. Some form of consolidation won’t be a surprise here.
In healthy markets, almost all news is considered good news. Starbucks reported earnings during the week. It barely met the estimates, but market chose to focus on their impressive comps (yoy sales growth) in North America and Asia. $SBUX gained almost 4% for the week and it is about 10% below a new all-time high.
Market is usually forward looking and in a medium-term perspective (3-12 months) is right a lot more frequently than not. This is why news and surprises typically follow the direction of the established trend. Analysts’ upgrades and downgrades follow a similar cycle with the exception that their effect is not always positive. They are always lagging indicators that are often faded. Look at $V and $MA. Both were upgraded on January 9 after having quite a run in Q4 of 2012. Both have underperformed ever since.
It is a bull market. Bull markets tend to climb a perennial wall of worry. A correction always seems around the corner, but it does not come as constant sector rotation propels the indexes higher. Expectations matter a lot. As the market saying goes – You make your most money at the beginning and end of bull markets – because everyone doubts the moves. With that in mind, the number of stocks at the 52-week high list is back to levels that historically have led to a pullback or sideways consolidation.
It is a low-correlation market of stocks, where stock picking matters. This is especially true during earnings season. A ton of St50 stocks are scheduled to report over the next two weeks. Some trends will be broken, some will be accelerated, new ones will be born.
You can easily follow any or all of the stocks in the ST50 on StockTwits by clicking here.
Have A Great Weekend!