Courtesy of Howard Lindzon
In a bear market you get some good bounces. We got one Friday.
The bounces can last a day or a week or a month, but until we are back over the 200 day moving averages in the Nasdaq and the S&P, bounces are just bear market bounces.
As always, Ivanhoff and I did our Momentum Monday show and toured the markets to chat about what is working and what is not. I did mention some ideas that I might trade, but they are not in the tech sector.You can watch/listen right here. I have embedded it below:
Here are Ivanhoff’s thoughts on the markets here:
One of the major characteristics of bear markets is very high correlations between stocks regardless of their current or expected fundamentals. We saw that last week when in the first half most stocks sold off together and in the second half they rallied – again together.
During market corrections, some religiously look for stocks that show relative strength. The premise is simple – if a stock tries to break out to a new 52-week high while the general market is selling off, it is likely to be a future momentum leader. We have seen this time and time again. One of the most recent examples is Cloudflare (NET). Between February 20 and March 5th, 2020, NET rallied to new all-time highs. At the same time, SPY dropped 15%. At the time, I wrote that NET is likely to be a future leader. Guess what happened in the next few weeks. The market accelerated lower bringing down everything with it. In a few short weeks, NET went from a new all-time high to new all-time lows. When the market calmed down and started to climb, NET quickly made new all-time highs and it went up 10x from there.
Keep a watch list of growth stocks that hold well and even try to make new highs when the market is in a correction but keep in mind that those growth stocks are not very likely to make big sustained moves until the market starts to climb.
We are in the midst of a bear market bounce. It could last only a few days or a few weeks. Any such climb would be a climb of a wall of worry. After a few months of selling, most market participants are not thinking about buying dips blindly and are not trusting the rallies. It will take a long time for this sentiment to change which means that excessive volatility and frequent reversals are still here to stay for the time being.
A key watchlist I follow is the Stocktwits Momentum 25 lists and they are still mostly full of energy and metas and not pure growth stocks.
United Health, the healthcare ETF ($XLV) and Mckesson are I a pullback in a strong uptrend right now. Alcoa ($AA) and the miners ($XME) are also in a steep pullback from all-time highs for those looking for stronger sector pullbacks.
I found this chart interesting – it measures the price to sales for the most expensive technology stocks and we are comning back to earth fast (which I guess is a good thing to get the fluff out fast):
This next chart shows how retail investors are now underwater from the 2020 FED ‘airdrop’ of money that went into Robinhood and other brokerage accounts:
One good sign of fear is the outflows from ETF’s is finally happening – this means fear and giving up:
Hope all this helps.
Have a great week.