Momentum Monday – Much Ado About Inflation

Big Tech reported earnings last week. For the most part, record numbers. Google and Facebook stood out which is a good sign for advertising spending. The reactions to Apple, Amazon, Microsoft and Tesla were a lackluster which typically means that their growth was already expected. In the meantime, the S&P 500 and the Nasdaq 100 were flat as a pancake last week. I still believe that the main indexes will continue to consolidate in a choppy range until the bulk of earnings reports are behind us. This would mean another 2-3 weeks of digestion.

You have probably noticed that quite a few breakouts have been failing lately. Breakdowns have not had a significant follow through either as dip buyers are around every corner. This is typical for range-bound markets. They never last long. Eventually, all consolidations are resolved and we have trending markets – up or down. Most of us prefer rising markets but money can be made during falling markets just as well.

So where has the strength been lately. A few groups stood out last week:

Ethereum keeps making new highs. It’s close to 3k as of the momentum of me writing this. Naturally, crypto and NFT-related stocks had their day in the sun last week. Nothing to write home about but stocks like MARA, RIOT, MSTR, DLPN, TKAT, HOFV have shown notable relative strength.

Vaccine stocks are also among the price leaders. It has become clear that vaccinating the world is the only cure and it seems we might need a booster shot once a year for the next 2-3 years. This is good news BNTX, MRNA, NVAX, etc. and this has been reflected in their prices. Most of them are quite extended and in need of some consolidation but don’t lose sight of them. They are likely to set up again for some sweet swings.

Select recovery stocks continue to shine. Homebuilders are reporting their best quarter in history, all of them sounding upbeat about the near-term future. Homebuilder stocks are not ones to be chased. I suggest a more patient approach here and wait for pullbacks to their 20 or 50day moving averages before opening a new position or adding to existing positions. Restaurant stocks also perked up last week. Government subsidies, easy comps, pent-up demand are sending the shares of CAKE, RUTH, BLMN, etc. to new 52-week highs. Granted, rising input costs and wages will take their toll but the market is not thinking that far ahead.