StockTwits 50, March 11

• Posted by Ivanhoff
• on March 9th, 2013

Animal spirits are back in full force. Momentum and small cap stocks handily outperformed, both gaining well over 3% for the week. The sectors that led the rally since October – consumer discretionary and financials, woke up and are leading again. The news flow continues to be positive and confirms recent price action. The dip a couple weeks ago already seems distant and looks like a clear buying opportunity in hindsight.

The biotech ETF ($IBB) reached another all-time high, which explains the crazy moves we saw in many small cap biotech and drug manufacturers stocks. Investing in biotech is not for the faint of heart. The best and worst market performers for the past two years are from that sector. Take for example Pharmacyclics ($PCYC). In March 2010, it was a $5 stock, today it is trading above $90 – abposter child example of the power of momentum as equity selection tool.

Homebuilders came back from the abyss (aka below their 50dma) and are back near multi-year highs. $PHM, $DHI, $NVR look ready to break out again.

It seems the oil & gas industry in U.S. is experiencing another boom. The market, being forward looking, likes to discount in advance and maybe this explains the recent gigantic moves in refiners and oil equipment and services stocks. It is a trend that certainly deserves closer attention and probably one of the overlooked catalysts behind the overall market rally. It is not just about the $FED and negative real interest rates.

At about the same time last year, I wrote a post about the three stages of a typical bull market. History rarely repeats, but it often rhymes. What I wrote about stages 2 and 3 back then is applicable to the current market:

2) Acceptance Stage
More and more people gradually warm up to the idea that we are in an uptrend and the market should be considered “innocent until proven guilty.” Stocks have been going up for a while and the minor dips short lived.

Between stage 2 and stage 3, there is usually a deeper market pullback, which tests the resilience of the rally, shakes weak hands out and allows for new bases to be formed. The deeper pullback is used as a buying opportunity by institutions which missed the initial stages of the rally and their purchases push the market to new highs.

3) Everything Will Go Up Forever
During stage one, most people are skeptical because the market has just come from a high-correlation, mean-reversion environment and most are unwilling to see the ensuing change in market character. In stage two, investors gradually turn bullish for the simple reason that prices have been going up for a while. Analysts and Strategists are also turning bullish in an attempt to manage their career risk. In the third stage, most market participants are ecstatic, not only because prices have been going up for a while, but because they personally have managed to make a lot of money. Everything seems easy, the future looks rosy and complacency takes over proper due diligence.

Some of the better looking risk/reward setups for next week include: $IFF $FTNT $MELI $FNGN $DHI $CSII $GWRE $EFII $POL $PHM $V $IMPV $ABAX $LNKD $CVLT $FEIC $ACHC $GEOS

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.

Have A Great Weekend!

St50 March 11 Added March 11 Removed March 11

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.

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