Momentum Monday – FANG Under Pressure and The Future of Fintech

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There’s no better indicator of market sentiment than the price action in momentum stocks. Tech momentum stocks have been obliterated in the past couple of days. This is nothing new. What’s more important is if they are able to muster a bounce again.

The recent market reaction to tech stocks’ earnings reports can be a concern for bulls. It’s not normal to see 20% one-day drops in large-cap tech leaders like Facebook and Twitter. In a strong bull market, bad news tends to be quickly forgiven. Add to that the lack of enthusiasm about Amazon’s and Google’s huge numbers, and you have plenty of reason to hedge or decrease long market exposure.

Dip buying has been working flawlessly for most of 2018, which explains why the current market is a little bit complacent. While many momentum stocks are getting murdered, the VIX is barely up. VIX tends to rally when the demand for SPY’s put options for protection or speculation skyrockets.

Another Strong Quarter for Servicenow

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Who says that you cannot make money in IPOs anymore because nowadays most companies go public very late in their growth cycle? Servicenow (NOW) made its debut as a publicly traded company in 2011 and since then its stock is up almost 1000% and reached a market cap of $34 Billion.

No mid-cap stock can go up 10X in six years if it relies only on a good story and expectations of future growth. Serivcenow has the growth to back up its price appreciation. In 2011, it made 4 cents per share. In 2018, it is expected to make $2.40 per share.

NOW reported another impressive quarter today. Its Q/Q earnings growth accelerated to 123% compared to 81% and 46% in the previous two quarters.

Keep in mind that the growth number is irrelevant if it doesn’t exceed market expectations. Look at NFLX which reported 467% earnings growth and it is still trading 20% below its all-time highs.

If the market is in a good mood, even a small surprise can lead to new 52-week highs and a sustained uptrend because happy people are willing to pay happy prices. A more cautious market needs a much bigger surprise to launch a new powerful trend.

NOW surprised by only 13%, which explains the lack of enthusiasm in the market about their huge growth numbers. Even its volume today was not that impressive. Typically, big new trends are started by breakouts on at least 3X the average daily volume.

Either way, I am bullish on NOW. A move above 195 might rekindle its momentum and lead to a quick spike – first to 200 and then to 220.

Momentum Monday – Google At New All-Time Highs

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Google is trading at new all-time highs after hours after crushing earnings estimates and now it’s only 15% away from the one-trillion-dollar mark. A follow-through tomorrow would be a major vote of confidence which will likely spread to the rest of tech stocks.

In the meantime, long-term interest rates are finally rising, which is a big boost for financials. It doesn’t make sense to bet against a market led by both, finance and tech.

Disclaimer: everything on this show is for informational and educational purposes only. The ideas presented are not recommendations to buy or sell stocks. The material presented here might not take into account your specific investment objectives. I may or I may not own some of the securities mentioned. Consult your investment advisor before acting on any of the information provided here.

78 Stocks Doubled Year-to-date

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I ran a MarketSmith screen to see how many stocks priced above $5 and trading at least 100k shares a day, doubled year-to-date. The result: 78.

One can easily assume that most of those stocks probably belong to very profitable companies. I applied an earnings quality filter. It turns out that only 6 out of the 78 stocks are in the top 20% in earnings quality. This should challenge the common-held belief that earnings growth is the driving force behind strong price performance. The market is a lot more nuanced and complicated in a one to twelve months perspective. Expectations for future price gains drive demand and supply in the short-term and nothing impacts those expectations more than recent price action. Price momentum continues to be one of the least understood and most powerful characteristics behind many of the best-performing stocks every single year.

Momentum Monday – Nasdaq at All-Time Highs, Netflix Under Pressure

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The Nasdaq 100 reached new all-time highs a few days before earnings season began. Amazon, Facebook, Google, and Microsoft rallied in anticipation of another set of strong earnings. Market expectations are certainly running high, so it’ll be interesting to see if the numbers justify them.

Netflix reported earnings after the close on Monday and so far, the reaction is not stellar. Netflix is down more than 10%. Reactions to earnings matter because they reflect the current market sentiment. Bad news is usually ignored in strong bull markets.

Disclaimer: everything on this show is for informational and educational purposes only. The ideas presented are not recommendations to buy or sell stocks. The material presented here might not take into account your specific investment objectives. I may or I may not own some of the securities mentioned. Consult your investment advisor before acting on any of the information provided here.