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We continue to trade in a market of stocks environment. While the small-cap index, Russell 2000 (IWM) is struggling under its 50-day moving average and financials are sliding despite rising interest rates, large-cap techs are within a striking distance of new all-time highs.
On the latest Momentum Monday, we go over some stocks that are holding well like BA, DIS, AAPL, AMZN. We discuss the price action in financials, Chinese stocks and a few stocks on the SL50 list.
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In 2012, the high-end yoga clothing retailer Lululemon gained $1.25 per share. Its highest price point for that year was $81.
In 2018, Lululemon is expected to earn $2.59 per share. Its highest price point this year has been 160.
Basically, Lululemon’s earnings and stock price both doubled since 2012. What’s more interesting is that while Lulu’s earnings have been gradually rising each year, most of its price appreciation has happened in 2018 alone after the company reported four much better than expected earnings reports in a row.
Their last report was especially impressive: 82% earnings growth, 45% earnings surprise, 25% sales growth. LULU gapped up to new all-time highs and traded 14.3 million shares on its first day after reporting earnings. It has been consolidating through time ever since.
LULU gained on average 19% after its previous earnings gaps. It has just started to clear new all-time highs with 4.3% of its float short. Quite a few institutions are underperforming the market averages so far this year, which is a recipe for performance chasing in the seasonally strong fourth quarter.
My thesis would be invalidated LULU closes below $150. Keep in mind that LULU is a high-momentum stock and its valuation is not cheap compared to other retailers. If the market is weak, LULU would have a hard time sustaining its rally.
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We made two shows this Monday:
They say that markets test not only levels but also people. While the major U.S. stock indexes are consolidating in a sideways range, the recent pullback in momentum stocks is testing the patience of many investors and traders.
How you approach the current environment depends on your market philosophy and your time frame of operation.
Swing traders aim to sell on strength because we believe that a prolonged upside move is followed by a pullback or a range-bound action. The goal is to compound our capital quickly by capturing hundreds of 5% to 20% short-term movers in a year.
Trend followers tend to sell on weakness because it is the only way to seize the meat of a long-term trend. The aim here is to capture a few big gainers in a year.
There is no right and wrong approach. The important thing is to have a clear process that you follow diligently – a process about finding setups, defining position size, exits, and overall market exposure.
In today’s Momentum Monday, we share our view of the current price action in SPY, QQQ, IWM, IBB, RARE, AMGN, ILMN, XLF, WFC, JPM, V, MA, AMZN, SNAP, etc.
