Momentum is a word that gets thrown around a lot. I personally like to measure momentum using a 14-period relative strength index (see here), but different people have different definitions. Fine. For today, we'll argue that "momentum" stocks are those listed in the MSCI USA Momentum Index. Looking at these stocks as a group, I think they are going to continue to get destroyed going forward, particularly relative to the rest of the market.
First of all, forget this whole FANG thing. I don't know who made that up or why people like to limit it to just 4 stocks. I think it's stupid. They have nothing to do with one another and there should be others included in the list. In fact, in November I wrote a piece about how FANG stocks are this cycles Four Horseman (See here) and was further evidence at the time that made us very bearish U.S. Stocks heading into December and January. That obviously worked out very well.
The U.S. Stock market and most of its sectors continue to rally. As happy as we are to see this, and as much as we expect this to continue through February, these are only counter-trend rallies within larger structural declines. The good news is that counter-trend rallies in bear markets historically tend to be the most powerful kind of rallies. I think there is still room to the upside in many different sectors with very well-defined risk.
All of the charts have been updated on the Chartbook. Here are my notes for this week's sector review:
As you guys know I started to turn bullish towards the stock market over the last couple of weeks for the first time since last October. Now, I want to make sure that we all understand that this is just a counter-trend rally within an ongoing bear market. Regardless, this is still a rally that I would like to participate in on the long side and every day
I am finding more and more opportunities to buy beaten down names, just for a trade, of course.
Is there anyone left out there who wants to buy Yahoo? I don't see any.
Talk about terrible sentiment in a stock. Anecdotally that's obvious, but our data suggests the same thing. Also, does anyone have anything nice to say about Marissa Mayer? All of this really gets my attention and has me thinking. Can Yahoo seriously mean revert here? I think there's a good chance.
Back in November I pointed to the Value Line Geometric Index as one of many reasons why I was bearish the U.S. Stock Market. One of many, but definitely a good one. You see, when we look at cap-weighted indexes like the S&P500 or Nasdaq100, the components with the largest market capitalization have the heaviest weighting in the index. This allows relative strength in some of the largest companies to hide what is actually happening underneath the surface. It doesn't tell the entire story.
By looking at the Value Line Geometric Index, which consists of around 1700 names and assumes an equal dollar amount invested in each stock covered by Value Line, we get a much more broad based look at the U.S. Stock Market.
There is much more to life that what the Dow did yesterday. Every week we go chart by chart looking at all of the major U.S. Stock Market Indexes. This analysis includes the S&P500, Dow Jones Industrial Average, Dow Jones Transportation Average, Dow Jones Utility Average, Nasdaq100, Russell 2000, Mid-Cap 400, Russell Micro-cap Index, etc.
All of these charts have been updated on both Weekly and Daily timeframes in the Chartbook and these are a few of my notes from this week's analysis including some updated risk vs reward levels:
Please note: this is multi-timeframe analysis looking both long-term and short-term. Defining who you are as an investor
, particularly your time horizon, is especially important at this point as, for the most part, the weekly charts and daily charts are telling different stories because they are on different time frames.
Over the past five years or so, USD/CHF has been laying the foundation for a structural breakout, a structural breakout that looks to be in its early stages as 2016 begins. Before I get into the price action, I think it's important to understand the context that this move is occurring within.
From a sentiment perspective, my data suggests that commercial hedger positioning and public sentiment are both at neutral levels. Sentiment is only important at extremes, which I don't see currently, therefore this will be the extent to which I discuss it in this post. In terms of seasonality, my data suggests that over the past thirty years, January-March has been the worst three month period of the year for Swiss Franc performance. The combination of these factors
Commodities and Currencies are telling an interesting story. When you go through each of them one by one, you start to recognize ongoing themes, whether in energy, metals or agriculture. In addition, based on specific strength and weakness in different currencies around the globe, that information can be used in multiple ways. Using intermarket analysis, we can take that information and use it in the equities market, or go ahead and trade the commodities and currencies directly using Futures, Forex or ETFs. Either way, it's worth doing the homework.
I just finished my Commodities and Currencies review and updated all of them in the Chartbook. It's nice to see Oil and Copper rallying as we discussed in the most recent letter. I think this theme continues
One of the big themes that I see globally right now is the inordinate amount of bullish momentum divergences across the board. You can see these even more pronounced in the emerging market countries, although to be fair, they can be found in the developed nations as well. They are all detailed in the Chartbook. I think that a very telling chart right now is the S&P500 vs the MSCI Emerging Markets Index.
Here we are looking at a very well-defined multi-year uptrend channel in the S&P500 vs MSCI Emerging Markets Index
This week I was driving home and flipping through radio stations on Satellite and I stopped to listen in on what was happening on the financial tv networks. I just learned this week that financial tv networks air their tv stuff on the radio too. Fun fact. Anyway, the topic was about Amazon earnings and how bad tech companies are doing. Not sure what Amazon has to do with technology? This was a stock market show. Amazon is a Consumer Discretionary stock. It's actually the largest component of the Consumer Discretionary sector and is not even listed in the Technology Sector Index. Still, on and on they went about Amazon being a technology company. It made no sense.
Guys, I get it. We can sit here all day talking about what great technology Amazon has, and AWS is so great, etc etc. Yes, I know. But we're talking about the stock market here, are we not?
