Momentum Monday – Choppy and Rotational Market

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The main theme remains fear of tapering and rising interest rates which is pressuring richly-valued stocks – software, Internet retail, biotech. Many are already down 30-50% in the past 2-3 months alone. Can they go down further? Absolutely. It’s normal for momentum stocks to give back 50% to 90% of their gains. Many never recover from such drawdowns. The likes of AMZN, AAPL, NVDA, TSLA, GOOGL that keep climbing higher for many years are the exception; not the rule. 

In the meantime, anything commodity-related is showing relative strength. Many oil & gas stocks are up 20%+ in the past couple of weeks. The metals and miners ETF – XME, is hovering near all-time highs. 

Outside of the basic material space, semiconductors, and carmakers have held the best. The biggest chip producer in the world, TSM broke out to new all-time highs lifting the entire semiconductor equipment space with it – AMAT, LRCX, ICHR, KLAC, ASML, etc. 

The S&P 500 and the Nasdaq 100 are below their 50-day moving average while the small-cap Russell 2k is below its 200-day moving average and close to breaking down from a very long range. The choppiness level in the indexes has increased significantly. We are seeing bigger and more frequent gaps that often get faded and much wider daily ranges. It’s a challenging tape for swing trades but an excellent one for nimble, intraday ideas on both the long and short side.

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