Momentum Monday – Stock Picker’s Market

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The two big catalysts in the past couple of months that have defined everything in the stocks market are: 

  1. The U.S. election results – clean energy stocks accelerated their ascent since then. Cannabis stocks gapped up and have been clear leaders. Semiconductors and biotech have also been extremely strong post the elections for their own unpolitical reasons. The odds are that those sectors will continue to lead in 2021 but that doesn’t mean chase them when they are up multiple days in a row. Wait for proper setups that create better risk/reward entry points – pullbacks to rising 20 day moving average or a range contraction. 
  2. The announcement of a working COVID vaccine – after Pfizer and Moderna revealed their vaccines, retailers, financials, and energy gapped up and have been among the leaders since then. Basically, they are the reasons the small-cap ETFs have done so well. Russel 2000 (IWM) doubled in 9 months since its March 2020 lows. To see a move of this magnitude, you have to go back all the way to 2009 when it took IIWM 14 months to double from its lows. Nothing goes up with such veracity in such a short period of time without having reactions along the way. Don’t be surprised to see 10-20% pullbacks in the indexes in 2021, but overall I expect those pullbacks (corrections) to be buying opportunities.

In the meantime, mega-cap stocks and many software stocks have pulled back or just moved sideways consolidating their gains from the first half of the year. I expected some of them to have strong pre-earnings rallies (AMZN, NFLX)  considering their reports in the previous quarter but so far I have been wrong on that. The new earnings season officially starts next week with NFLX and a bunch of financials. After that, we have the big tech and everyone else.

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