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.
Good morning.
I was trying to be ‘patiently constructive‘ during last weeks Momentum Monday. It is harder to be constructive today. As Ivanhoff mentions in this weeks episode…the inflation trade is back dominating the tape.
I will get right into it with today’s Momentum Monday. You can watch/listen to Ivanhoff and I walk through all the good, the bad, the ugly right here on YouTube. I have embedxded the show here on the blog below:
I think indexes will continue to struggle going forward as too much money sloshing and too many overvalued companies that people will eventually shed. A couple weeks ago I wrote abut the battle coming at the 200-day moving average. As I thought, the 200-day moving average has beaten stocks back for now.
Patience and risk management will continue to rule as valuation compression works its way through a deglobalizing world flooded with capital.
Here are Ivanhoff’s thoughts:
The main premise behind the summer rally was that the Fed was going to pivot because of the possibility of overdoing it and causing a severe recession. This was the market’s bet. As a result the stocks that were hit the hardest since February 2021 due to rising interest rates – like biotech, were among the best performers in the past couple of months. On Friday, Fed’s chairman was very clear that the Fed is not ready to change its tightening policy just yet, and bringing down inflation continues to be the main concern. It seems his words sobered the market up fast and caused a major selloff across the board – biotech, semis, software, retailers, financials, industrials, consumer discretionary, etc.
Last week was the second down week in a row for the main indexes. Both, the large-cap S& P 500 (SPY) and the small-cap Russell 2k (IWM) tested their 50-week moving average two weeks ago and have pulled back about 6-7% since then. The next potential zones of support are their 50-day moving average: about 398 for SPY and 181 for IWM.
The only market areas that have handled the selling in the past couple of weeks relatively well are commodities – energy like oil & gas, coal, uranium, solar; fertilizers, and industrial metals. Those groups were clear leaders in the first half of the year but then underwent a deep 30-50% drawdown during the summer only to bounce back later. The inflation trade is back on. The question is for how long? If the market is really worrying that the Fed’s tightening policy will lead to a severe recession, then those groups will start to crumble as well.
Typically, future market leaders build new bases while the indexes correct. It’ll be interesting to see if the current leaders like ENPH, FSLR, LNTH, SWAV, EVH, GFS, ON, WOLF, TMDX, CELH, and others will simply remain above their 20 and 50-day moving averages while the indexes potentially sell off further. From a strictly seasonal perspective, stocks tend to be weak ahead of the mid-term elections and strong after. Obviously, there are many other factors currently at play. I will remain nimble and take things one week at a time.
Other reads I enjoyed on the markets…
This US housing affordability chart from Charlie is rather sad and seems dangerous:
Unprofitable tech is the weakest group, but semiconductors, retail and homebuilders are ugly too:
The Stocktwits Momentum 25 lists were flush with wins from within energy.
I always like reading the free ‘Rotation Report‘
Have a great week…capital preservation mode still for me.
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.