Wednesday, November 30, 2011

Junk Stocks Leading, Not a Great Sign

This past weekend, I went through about 200 stock charts (yes, I live an exciting life) and was shocked at how bad the setups were.  Frankly I could only find about 4-6 charts I'd really consider from the long side.  Of course the market has bounced some 6% this week on intervention central (first the Sunday rumors of IMF to Italy and then this morning).  That doesn't mean we have good setups... a lot of the best movers are the junk stocks.  I say junk not as a discussion of their business, but on their performance this quarter, half year, year to date, etc.  You want leaders to lead... not the broken stocks.   The meek shall lead them works well in religious text, but not so good in stock markets.

Bespoke shows us this in a nice table.... the stocks that have had the most mojo this week have been the bottom feeders.   That doesn't mean its not fun to enjoy a big move up if your positioned long but frankly most except the most nimble who are enjoying this week's gains also 'enjoyed' last weeks "worst Thanksgiving ever."  Along with a lot of other things (i.e. European bond yields improving substantially for one), you want a crop of leadership stocks with the strongest relative strength to be your thoroughbreds for a sustained move.  Not these guys...

That said it is always fun when coal stocks trade like Commerce One or Lycos circa 1999.

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