Momentum Monday – Wild Market of Stocks

The charts on Momentum Monday are powered by MarketSmith

Small caps had a huge week. Russell 2000 (IWM) gained 5%. It is back above its 50 and 200-day moving averages and near the technically important 160 level. Will it stay in a range or it will break free. This is the big question.

What is different about this rally is that it has been led by lagging sectors – financials, retail, etc. In the meantime, many momentum stocks took a sizeable haircut. When I say momentum stocks, I don’t refer just to software which has been in disarray for a few weeks now. Even stocks like CMG, CME, V, and MA took a hit – granted their pullbacks are just minor blips when viewed from a 10,000 foot view but nevertheless, they have shown notable relative weakness in a strong market.

To sum things up – it seems someone flipped a switch and we saw an algo-related move from momentum to laggards.The weakest performers of the past year went up 20-30% while the strongest lost as much.

I don’t know if I am looking at the wrong stocks (and I am basically looking at all of them), but I see more bearish than bullish setups which is weird with the major indexes near all-time highs. If this is the beginning of a new leg higher, we should be seeing more stocks breaking out to new 52-week highs from proper bases. Maybe this time is different? By all means, either the indexes will catch up with the momentum stocks or the momentum stocks will catch up with the indexes.

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