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  • Momentum Monday - Slow Motion Selling but Underneath the Large Caps, Unprofitable Companies Being Crushed

Momentum Monday - Slow Motion Selling but Underneath the Large Caps, Unprofitable Companies Being Crushed

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Good morning. The storm mostly passed us by on Coronado. I used the weak storm as an excuse to run on the beach during the warm morning rain yesterday. I have not done that in 40 years I imagine and it was fabulous to just soak it in. It is nice to have the mental freedom of a teenager in my late 50’s, with the context to just enjoy these rare opportunities when they arrive.

The storm did not stop Ivanhoff and I from our Momemtum Monday show. You can watch this weeks episode right here on YouTube. It is easy to subscribe and if you do every Sunday you will get an alert when we post the show. The chapters below make it easy to see what we covered. I shared a lot of interesting charts this week.

Chapters:

  • Intro (0:00)

  • Correction mode (1:00)

  • FANG leadership (5:00)

  • Cheap downside protection (6:45)

  • All things energy (8:15)

  • Companies with negative earnings (8:50)

  • REITs (10:10)

  • Semis catch a bid (10:58)

  • Leaders are holding (11:48)

  • Fintech (12:15)

  • ZIRP environment (14:05)

  • Retailers (20:24)

  • Wrap up (24:00)

Here are Ivanhoff’s thoughts:

We saw more distribution days last week. Most stocks went down via gradual, slow-motion selling. We haven’t really witnessed any panic selling that tends to mark short-term bottoms. Market breadth reached oversold levels last Friday. Most stocks gapped down on Friday after being down several days in a row. As expected, that gap faded. The fact that the indexes are in a correction is now evident to everyone. More people are turning bearish which means that we might see a quick bounce to shake out all the bearishness.

If this is just a garden-variety correction within a bull market (which I believe it is), it makes sense to compare it to what happened in February/March of this year. That pullback started just when the market became a bit euphoric after a big run in January. The correction had two legs lower intercepted by a big bounce towards SPY’s 20dma. On the first leg lower, almost all stocks got hit. Then most had a big 3-day bounce to their 20-day moving average. During the second leg lower, some stocks (especially in tech) went sideways, showing relative strength. The moment the correction was over and the indexes bounced, those tech stocks outperformed significantly. I am not saying that this is the way the current correction will play out and what the duration of which leg will be, but it is a decent map to keep in mind. A notable difference this time is that all major indexes are below their 50-day moving average. QQQ never closed below its 50dma back in March.

Nvidia (NVDA) reports earnings on Wednesday afternoon. It has been the biggest leader so far in 2023. My guess is that this bull market won’t be over until NVDA is hit hard which is not very likely to happen at this point in time. The last time Nvidia reported, on May 24th, they crushed estimates, raised guidance and kick-started a big rally in the tech sector. The stock is up 200% year-to-date so a lot of the good news might be already discounted in its price. Every momentum investor owns it, so any significant dip is likely to get initially bought. If it gaps up, I would not be surprised to see it fade as people rush to take partial short-term profits.

Have a great week.

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.

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