Momentum Monday – Defense!

Good morning everyone.

As usual, Ivanhoff and I got together to tour the markets looking for momentum. This week it is the defensive stocks in charge which means, I continue to play defense with my money. You can watch/listen to the video here and I have embedded it on the blog below:

Here are Ivanhoff’s quick thoughts…

What really happened last week from a big picture perspective – anything high-growth and cyclical that had shown even remote relative strength finally caved in – the mega caps QQQ, semiconductors SMH, homebuilders XHB, financials XLF. It might seem dramatic to talk about a market correction with the S&P500 so close to its all-time highs and still above its 50-day moving average but there has been some serious damage under the surface. Many of last year’s momentum leaders are down 40-50% from their highs. There is a new group of stocks getting hit every week while the most-oversold sectors are having big 1-2-day short-covering rallies. All of this has created extreme volatility and choppiness which require all traders to be extra nimble or just step aside a wait it out.

The Fed wants to accelerate tapering and plans to raise interest rates three times next year in order to fight inflation. Initially, the market read this as complacency and underreaction. All stocks had a major rally on Wednesday afternoon. Most were given back on the following day. Friday was a quadruple option expirations day and we had some major mean reversions. The worst-hit groups in the past few weeks had a sizable bounce – biotech and high-growth, high-multiples software stocks. In the meantime, financials, homebuilders, mega-caps, and semis showed relative weakness. At least this market is not boring and riddled with high correlations.

SPY, QQQ, and SMH are now looking vulnerable to further downside if they lose their lows from Friday. The odds are that we will see more choppiness next week.

Howard here…the headlines are focused on inflation and as Charlie points out in his weekly 6 chart weekend posts, The S&P is generally the best hedge. Also the USA is holding best.

As always, I also include the Stocktwits weekend 25 lists which looks at the best momentum stocks in the market. There is no hiding right now as all the lists were negative.

Finally, I will leave you with a fun Josh Brown/Batnick interview with Tom Lee who lays out a very bullish S&P view. I enjoyed listening.

As a reminder, Marketsmith (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from Marketsmith. They are offering my readers a three week trial for $19.95. Click this link if you would like to try it out.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For full disclosures, click here