SP500
This recovery hasn't been led by the typical leaders of the recent bull market. This rally has seen the "junk" stocks, those that have been in horrible bear markets, lead with the best gains. This doesn't mean you can't make money by trading them, quite the opposite really. But it does tend to suggest more caution than normal and is more indicative of short covering than a new bull market beginning.
Anyway, regardless of how we want to label this recent rally, we are finally seeing signs that things may be slowing down. Some of the best moves have come out of the Materials, Mining, and Energy groups. Mostly names that have been obliterated over the past year and are now having their "bottom callers" moment.
Freeport-McMoran (FCX)
McEwen Mining (MUX)
3D Systems (DDD)
US Steel (X)
Chesapeake Energy (CHK)
All of these names have rallied substantially in the last 4 weeks. Each seeing gains of more than 100% since the January/February lows. With the market recovering 10%, these stocks above are either the new bull market leaders or simply making a long overdue short-squeeze type move.
Trading volumes expanded significantly the last couple days, well after these trades had rallied dramatically. This shows that those who were late to the party just figured out what was happening and piled in while better prepared participants distributed shares to them as prices reached prior resistance areas. This is very typical of desperate, chasing behavior which tends to happen near the end of moves. Its exactly the same as a large decline; participants capitulate when they can't take any more pain. In this case they simply couldn't miss out on these rallies any longer.
This recovery hasn't been led by the typical leaders of the recent bull market. This rally has seen the "junk" stocks, those that have been in horrible bear markets, lead with the best gains. This doesn't mean you can't make money by trading them, quite the opposite really. But it does tend to suggest more caution than normal and is more indicative of short covering than a new bull market beginning.
Anyway, regardless of how we want to label this recent rally, we are finally seeing signs that things may be slowing down. Some of the best moves have come out of the Materials, Mining, and Energy groups. Mostly names that have been obliterated over the past year and are now having their "bottom callers" moment.
Freeport-McMoran (FCX)
McEwen Mining (MUX)
3D Systems (DDD)
Chesapeake Energy (CHK)
All of these names have rallied substantially in the last 4 weeks. Each seeing gains of more than 100% since the January/February lows. With the market recovering 10%, these stocks above are either the new bull market leaders or simply making a long overdue short-squeeze type move.
Trading volumes expanded significantly the last couple days, well after these trades had rallied dramatically. This shows that those who were late to the party just figured out what was happening and piled in while better prepared participants distributed shares to them as prices reached prior resistance areas. This is very typical of desperate, chasing behavior which tends to happen near the end of moves. Its exactly the same as a large decline; participants capitulate when they can't take any more pain. In this case they simply couldn't miss out on these rallies any longer.
Prepared market participants have very defined setups and structure they look for in a trade entry/exit. Generally speaking these market players don't enter a trade 4-weeks into 100% vertical moves. Emotional traders do this and this is why most fail in the markets. They react emotionally, with little conviction and end up chasing the market around rather than letting it come to them.
That said, it is possible this is the beginning of a new raging uptrend for many of these names. However this is also very typical of down-trending behavior and market psychology at its purest.
Taking these moves in context of the bigger picture there is still tremendous damage to repair. It certainly could happen, but major bottoms like this take time to play out. Just take a look at where these currently trade in relation to their recent highs:
CHK
FCX
X
You get the point. All of these rallied off a lower weekly swing low and remain severely depressed from highs just a year or two ago. Major long-term moving averages are sloping lower as well. I'm not saying this isn't the low, it very well may be. We simply don't have the evidence in place to suggest we need to pile in at current prices.
Bases take time to build and this may be the first step. If you are bullish longer-term on these names we need to see the next pullback find support at a higher low and for the moving averages to flatten out and turn higher under price. Just know that if these moves turn out to be the real thing and generational lows are in place, you will have PLENTY OF TIME to participate in the upcoming rally. Don't feel compelled to buy right here, you won't miss out on much. Lets sit back and see what can develop over the next few months. Maybe pullbacks hold support and setup favorable risk/reward opportunities. Maybe this was just another counter-trend surge and new lows are coming in the near future. Nobody knows. The point is you don't have to know if the bottom is in to profit on the potential upside. Simply watch how price behaves after these trend rattling moves. Keep a list of your favorite names and see what develops.
Thanks for reading
-ZT
That said, it is possible this is the beginning of a new raging uptrend for many of these names. However this is also very typical of down-trending behavior and market psychology at its purest.
Taking these moves in context of the bigger picture there is still tremendous damage to repair. It certainly could happen, but major bottoms like this take time to play out. Just take a look at where these currently trade in relation to their recent highs:
CHK
FCX
X
You get the point. All of these rallied off a lower weekly swing low and remain severely depressed from highs just a year or two ago. Major long-term moving averages are sloping lower as well. I'm not saying this isn't the low, it very well may be. We simply don't have the evidence in place to suggest we need to pile in at current prices.
Bases take time to build and this may be the first step. If you are bullish longer-term on these names we need to see the next pullback find support at a higher low and for the moving averages to flatten out and turn higher under price. Just know that if these moves turn out to be the real thing and generational lows are in place, you will have PLENTY OF TIME to participate in the upcoming rally. Don't feel compelled to buy right here, you won't miss out on much. Lets sit back and see what can develop over the next few months. Maybe pullbacks hold support and setup favorable risk/reward opportunities. Maybe this was just another counter-trend surge and new lows are coming in the near future. Nobody knows. The point is you don't have to know if the bottom is in to profit on the potential upside. Simply watch how price behaves after these trend rattling moves. Keep a list of your favorite names and see what develops.
Thanks for reading
-ZT
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