Momentum Monday – New All-Time Highs


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Last week, we talked about the plethora of setups in the software space and the weakness in the so-called old-economy sectors – financials and basic materials which caused the S&P 500 to close below its 50-day moving average. A few days later, SPY closed at new all-time highs led by banks, retailers, oil, biotech, and tech stocks. In other words, almost everything went up. Maybe it was the rise in interest rates or the new infrastructure stimulus plan announced by the government but the fear of missing out is back with full force. We can see it clearly in the run in many of the speculative highly-shorted stocks that had 50-80% drawdowns this year alone – SPCE, DDD, FUBO, WISH, PUBM, TTD, ROKU, etc.

In the meantime, the impressive growth in Nike’s latest earnings report confirmed that there’s a huge pent-up demand in the U.S. which is likely to benefit consumer discretionary stocks. Some names to consider include FTCH, SFIX, DECK, etc.

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Momentum Monday – Unwinding of the Inflation Trade


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For the better part of 2021 so far, value stocks have outperformed growth stocks. The reason – the market was trying to price inflation not seen since the mid 2000s. As a result, the U.S. Dollar and the U.S. Treasuries took a dive while financials and basic materials skyrocketed. In the meantime, almost anything software or clean-tech related lost 30% to 80% in just a few months. It seems the market was woken up to the possibility that the inflation dangers might have been exaggerated or the fact that the Fed is actually ready to step off the gas. 

Starting about two weeks ago, the whole inflation trade has been unwinding. What went up, pulled back. What was under pressure, has been rallying. Financials (XLF) are now down 9% from their 52week highs, basic materials (XLB) are down 6%, industrial metals (XME) are down 14%, homebuilders (XHB) are down 13%. Meanwhile, software stocks have been reborn. Many of them have been on a 30-40% ramp. Now, the big question is can the Nasdaq Composite continue higher while most non-tech sectors are pressured and already below their 50-day moving average. I think it can. Capital is not leaving the stock market. It is merely rotating between sectors and right now it’s tech’s time to shine. How long this is going to last is anyone’s guess. The market is a fickle machine. One day soon, it might decide to assume the inflation narrative again and start another rotation. There’s no reason to guess when. Price action will leave plenty of clues.

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Momentum Monday – Rotation into Tech


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The Nasdaq 100 and the small-cap index Russell 2000 started the year strong. Then, in mid-February, entered into consolidation building a long multi-month base. While QQQ and IWM were in a range and many momentum stocks from 2020 experienced 50%+ drawdowns, the so-called old-economy stocks – financials, industrials, transportation, basic materials, energy, outperformed significantly – the market tried to manage quickly rising inflation expectations. In the past week or so, the roles began to reverse. It seems financial markets have woken up to the possibility that they might have over-discounted the threat of sizable longer-term inflation and are now backpedalling to correct the excesses. This is nothing new. The markets are often too fast to react to new dangers and opportunities and therefore, swing too far to the upside or the downside. This is what makes trading and investing so interesting, challenging, and exciting at the same time. 

We might have entered a new narrative that is positive for the so-called new economy stocks – software, semis, solar, biotech, medical devices, etc. Growth stocks are setting up and breaking out again, the general price action is bullish and the most appropriate action, for the time being, is to remain long.

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.

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

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