The stock market is a game of perception. Is the fear of missing out bigger than the fear of losing? In good times, price momentum is the ultimate catalyst. Good news follows the direction of the established trend, bad news is ignored. Happy people pay happy prices. Usually a few violent down days remind people of what it is to lose money and changes sentiment. The market always gives enough clues before any major move.
People have been looking for a correction for more than a month. There are no signs of it in the indexes, because this is what happens in a low correlation market of stocks – sector rotation masks the underlying correction.
Under the surface, money has been moving between sectors and some groups have experienced notable decline. Last week, we saw gold and silver miners get taken to the woodshed. Natural gas and agriculture stocks joined them. On the upside, media (TV and Publishing), solar and almost anything related to housing shined.
Momo stocks have underperformed for 3 weeks in a row. The st50 index dropped 0.8%.
There is a subtle change in the air. The market is not as forgiving as it was just a few weeks ago. Bad news is starting to count. Look at price reaction to some of the major earnings reports last week. $RAX, $GNRC, $ULTA, and $ASGN among others were just obliterated. On Friday, a leaked email from a Walmart executive – revealing horrid start of the year for the biggest retailer in the world – was enough to send stock prices lower across the board. This is a major change in sentiment. Just a few a weeks ago, the market did not even care about weak GDP numbers.
When the market is looking for a reason to sell, it always finds one. Look at the action in 3D printing stocks over the past week. While recent IPOs $PRLB and $XONE exceeded even the highest expectations in terms of price performance, the more established $DDD and $SSYS suffered a major blow after another negative headline resurfaced.
Behind each big trend, there is always a good story that fascinates the mind and captures investors’ imagination. It is the promise of future earnings that drives people’s perceptions and actions in the stock market. The market is usually a proactive discounting mechanism, but sometimes it gets ahead of itself and needs some time for fundamentals to catch up before the trend resumes. 3D –printing stocks $DDD and $SSYS might be in that situation currently.
It is still a market of stocks environment, which separates the winners from the losers.
$KORS delivered better than expected earnings again. It cleared new all-time highs. Now, it needs some time to consolidate after its gap.
$MENT is looking ready to blast higher. $17.50 is a potential pivot. In bull markets, it is Ok to own great setups in anticipation of a breakout. Be mindful of earnings dates.
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Have A Great Weekend!