Momentum Monday – Improving Market Breadth and New Sector Rotations

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Market breadth has improved substantially, but many momentum stocks are extended for new entries. The biotech sector is stepping up to the plate.

Some stocks that we cover: CRSP, ILMN, AKAM, SGMS, LUX, etc.

Disclaimer: everything on this website is for informational and educational purposes only. The ideas presented are not recommendations to buy or sell stocks. The material presented here might not take into account your specific investment objectives. I may or I may not own some of the securities mentioned. Consult your investment advisor before acting on any of the information provided here.

Momentum Monday – More Reasons To Be Bullish

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Apple is 9% away from a trillion dollar market cap. The Nasdaq 100 is back above its 50-day moving averages. Momentum stocks are breaking out. We go over BIDU, SHOP, BZUN, NFLX, DIS and many others.

Disclaimer: everything on this website is for informational and educational purposes only. The ideas presented are not recommendations to buy or sell stocks. The material presented here might not take into account your specific investment objectives. I might or I might not own some of the securities mentioned. Consult your investment advisor before acting on any of the information provided here.

One Sign That Consumer Confidence Is Near All-time Highs

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One anecdotal evidence that the U.S. economy is booming and consumer confidence is near all-time highs is the price action in MBUU, which makes sports boats.

I’ve been told that everything that moves should be leased and not bought, but this is not what many people are doing. Malibu Boats just reported the best quarter in their history. MarketSmith shows earnings and sales both grew 82% on a quarter-over-quarter basis, which is a significant acceleration compared to previous quarters. The market loved the results and sent MBUU’s stock 20% higher to new all-time highs. 1.1 million shares changed hands today, which was the second biggest volume in Malibu Boats’ price history.

People don’t buy sports boats because their business or family is growing. They buy boats when they have plenty of discretionary income to spend and feel confident about their future income.

The Future of Visa and Mastercard

Five and a half years ago, Abnormal Returns asked a bunch of people from the financial blogosphere to share their best pick for the next decade – an asset people would feel comfortable holding. Most chose SPY. There were some calls for Nasdaq, AIG, Apple, Ford, Emerging markets. I chose Visa and/or Mastercard.

Here’s my reasoning in 2012:

I am not a long-term investor per se.10 years is an eternity and a lot of price cycles will change over that period of time. Nevertheless, for the purposes of this exercise, I would go with Visa ($V) or Mastercard ($MA). They have so many catalysts going for them – rising online sales, digital wallets, emerging markets and are part of the S&P 500 which will likely do well too.”

Sometimes, simple and obvious things in the market work out better than you expect.

I am still bullish on Visa and Mastercard. They continue to ride the wave of massive smartphone adoption and rapidly rising online and cashless transactions around the world. But I also pay attention to the potential threats around the corner. The blockchain technology will likely create many new competitors for Visa and Mastercard. They are not going anywhere. They will continue to grow but their margins are likely to come under pressure. I think we are at least five years away from that happening.

What is to stop Apple and Google from creating a bank? Quite a few of their users would proudly transfer their finances to the Bank of Apple and the bank of Google. More and more people will use their phone as a digital wallet and pay everywhere with it. Services like Venmo will become more popular and share less personal information. All merchants will surely love a transaction that doesn’t involve paying 3% to Visa or MA.

What Do The Best-Performing Stocks in 2018 Have In Common?

20 stocks have more than doubled year-to-date.

Many are biotech, but this is a cyclical, not a structural reason. A structural reason is one that persist; one that shows over and over again.

All of them had a market cap of under $1 Billion on January 1st.

All of them have a float of under 100 million shares. Most have a float of under 50 million shares.

Float is the difference between Outstanding Shares and Restricted Shares.

Restricted shares cannot be traded until certain conditions are met. They are usually employees compensation stocks that have not been vested yet. Founders’ stock that is locked up (the founders and private investors in new public companies are usually not allowed to sell their shares in the first 6 to 12 months after the IPO).

A small float can cause a major supply/demand disbalance and a substantial price appreciation or depreciation in a short period of time.

A small float is a double-edged sword. It can lead to fast moves but also liquidity can disappear suddenly and leave you hanging if you own a large number of shares.

Most of the best performers YTD were neglected. They did not have strong momentum going into 2018. Most were/are not profitable. None of them are fastest growing companies.

Most started their move with a huge-volume price expansion. Then, they consolidated and gave a decent secondary entry.

Keep in mind that this analysis is made on a really short time frame. Year-to-date means less than three months as of today. If you study the performing stocks for the past 3 years, you might find out entirely different reasons behind their moves.

Know your time frame and the catalysts that matter the most for it.