Friday’s Odd Action
The stock market has spent much of this year trying to exceed its year end 2013 high, and finally succeeded in terms of several indexes in late February/early March. However, it has also dispensed a number of warning shots along the way. On Friday, another such warning shot arrived. A number of momentum stocks were whacked quite badly on Friday, but interestingly, many have actually begun to decline about two weeks ago already.
Friday left the market with a not very pretty daily candle, but what is probably most noteworthy about the action is that it happened on tremendous trading volume. Partly this can probably be ascribed to the expiration, but it is still a bit of an exclamation point considering the many divergences we have been able to observe recently.
Below are a few charts that illustrate the situation. First a look at the Nasdaq and various momentum issues that have been favorites of speculators for some time and have begun to founder a bit.
Nasdaq, 5 minute chart. It gapped up at the open on Friday and immediately started selling off – click to enlarge.
Next a look at a few daily charts of several momentum stocks that show that the weakness actually started already in early March. Underneath continued strength in the overall market, many leading stocks have begun to deteriorate. Mind, this is not a comment on whether these particular stocks are overvalued (they most probably are) or on their business (which is probably good). We are merely interested in technical conditions here, and have picked the individual stocks almost at random. We could have made this a much longer list.
PCLN, daily – one of the strongest momentum stocks until early March, but it has been declining since then, even though the NDX almost recaptured its early March high last week – click to enlarge.
NFLX daily, another momentum favorite. Its price action was quite similar, also peaking in early March. Friday’s accelerated sell-off looks a bit worrisome to our eye – click to enlarge.
BBH, the biotech ETF. Up until recently, the Rydex biotech sector fund held the by far biggest share of bullish Rydex assets (more than 35% at the peak). BBH mainly represents biotech big caps such as Gilead, Biogen, Amgen, Celgene, etc. – it peaked in late February already and had a very bad hair day on Friday – click to enlarge.
