Momentum Monday – Market of Stocks

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Last week was the closest I’ve seen to a “market of stocks” environment in a long time. While the S&P 500 and the Nasdaq 100 pulled back on large volume, there were plenty of current and former momentum stocks that pushed higher.

Seasonally, the third week of September (next week) is the weakest in the entire year. It should not be a big surprise if we see more turbulence. It would be normal if QQQ tests its August highs near 370 which coincides with its 50-day moving average. 

The S&P 500 hasn’t spent more than one day below its 50-day moving average so far this year. This might be about to change next week. From a big picture perspective, there is no reason to get overly bearish yet. If you look at a chart of SPY, you will notice that every swing low has been above the previous swing low while every swing high has been above the previous swing high. This is the definition of an uptrend. SPY is still in one until it closed below 436.

It is interesting to see so many FANG stocks under pressure – AAPL, GOOGL, FB, NVDA, etc. I don’t know if it’s the market worrying about new anti-competitive practices in Big tech or simply people freeing up some cash to enter smaller-cap, more speculative growth names. If it’s the latter, we should see the small-cap index Russell 2k (IWM) and growth/momentum ETFs like ARKK and FFTY start to outperform. If all of a sudden there’s a  spike in correlations, meaning small-cap IWM breaks below 220 and high-momentum stocks start to drop on big volume, then we might be in for a bigger correction. 

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