Momentum Monday – The Market Is In a Pullback Mode

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Joe Fahmy from joefahmy.com and Zor Capital joined us to talk momentum and the lack of thereof.

Last week started with rotation into the so-called back-to-normal (from Covid)  stocks like leisure, airlines, hotels, oil & gas, and financials. While those recovery industries were rising, interest rates were quickly accelerating putting downward pressure on tech stocks. Something broke on Thursday and the entire market started to pull back. QQQ closed below its 50-day moving average. SPY closed below its 20-day moving average. Momentum stocks as measured by the ETFs – MTUM and ARKK, had their worst performance since September-October of last year. The market is currently in a correction mode. 

There are two types of market correction:

  1. Sector rotation – the indexes remain relatively unscathed in move in a wide sideways range while money constantly rotates from one group of sectors to another. This is the most common type of consolidation. Basically, a stock picker’s market. 
  2. High-correlation pullback which brings down most stocks – the price action last Thursday was a good example of this. Most breakouts are faded or find very little follow through during this market environment. Short ideas work better but they often require going through a lot more volatility, using wider stops or selling the rips to declining 5, 10, 20-day moving averages in anticipation of another leg lower.

I believe this is a garden variety pullback that will eventually end up being another buying opportunity but while it lasts it can chop our account if we are too active. Corrections are good for future returns. Market leaders build new bases during corrections. What’s important is to protect our capital and confidence by not over-trading or oversizing any new ideas. Cash can also be a valuable position.

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Momentum Monday – Inflation All Over the Tape

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The signs are all over the tape. Interest rates continue to spike. Soft and hard commodities haven’t been this strong in more than 15 years. The U.S. Dollar is in a downtrend. Stock markets around the world are in an uptrend led by small caps. It could be the new fiscal stimulus or the expectations for the Fed to remain accommodating for the foreseeable future or the vaccinations to end the virus sooner than most believe, but back-to-normal stocks continue to be on fire – airlines, hotels, travelling agencies, leisure stocks in general, oil & gas, financials, industrial metals like copper, nickel, steel, lithium, etc. In the meantime, many of the large and mega-cap stocks which are considered a sure thing in the long-term (AMZN, AAPL, MSFT, FB, NFLX, GOOGL, V, MA,  etc), are showing clear relative weakness. The narrative has changed at least for the time being. 

The stock market is often acting counter-intuitively. After all, who in his/her right mind would consider buying airlines that are still operating at half capacity and are dependent on government help and sell Apple and Amazon which are reporting record numbers? And yet, this is what is currently happening. The market is looking 6-12 months ahead and trying to discount a different story. The market doesn’t always end up being correct but between the process of discounting the future and the confirmation or rejection of it by reality, many stocks can go up 2-10x. This is why we pay attention to price action. The only things that change are the tickers of the leading stocks; their patterns remain the same.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing, intraday, and position trade ideas, the Momentum 40 list of market leaders, and much more. See some of the recent testimonials.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed option and stock ideas shared on my private Twitter stream and emails for subscribers.

Check out my free weekly email. to get an idea of the content I share with members.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.


Momentum Monday – The Same Trends Persist

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The same trends persist – the majority of stocks continue to edge higher; Interest rates too as inflation expectations are rising. The U.S. Dollar is still under pressure. Cryptocurrencies keep getting more popular. The only things that change often are the leading sectors. While some of the high-flyers (cannabis, 3D printing) pulled back last week, money rotated into semiconductors and software stocks. 

There are more SPACs, IPOs, secondary offerings. The supply is growing but the bull market is still intact. In fact, we saw a significant spike in speculative moves last week compared to the previous. It’s anyone’s guess how long it is going to last but when you have so many sectors making new highs and setting up for potential breakouts, it is better to stick on the long side. Granted, there have been the occasional hiccups lately – the number of false breakouts and intraday shakeouts have increased but this is a normal part of any bull market – bull markets correct through sector rotation.  

Quite a few sectors are setting up for potential breakouts: metals (XME), financials, (XLF), industrials (XLI), even the so called recovery industries like airlines and casinos are looking constructively.

Clean energy is still strong. It seems a different EV stock is popping up 20-30% every day of the week. It is certainly a sector with a lot of hot money and movement: TSLA, NIO, LI, GOEV, AYRO, FSR, etc. Solar also stocks continue to set up.

Try my subscription service which includes a private Twitter feed with option and stock ideas, emails with concise market commentary and actionable swing, intraday, and position trade ideas, the Momentum 40 list of market leaders, and much more. See some of the recent testimonials.

PERFORMANCE

Here’s a Google spreadsheet tracking all closed option and stock ideas shared on my private Twitter stream and emails for subscribers.

Check out my free weekly email. to get an idea of the content I share with members.

Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.