Momentum Stocks Keep Getting Crushed

RUT-SPX ratio, NDX-SPX ratio – click to enlarge.

This chart cannot possibly inspire much confidence. Even while the S&P 500 and the DJIA hover close to all time highs, the Russell 2000 index and the NDX keep getting clocked on a relative basis. The 'flight to supposed safety' continues, as the XLU-QQQ ratio demonstrates as well:

XLU-QQQ ratio, still rising – click to enlarge.

Several former darlings of the momentum chasing crowd have by now been cut in half, or nearly so – so to speak going through stock splits the old-fashioned way:

3-D printing company DDD: maybe they printed too much stock? – click to enlarge.

Social media darling YELP – our friend BC suggested that it should perhaps be renamed 'HELP!!' (incidentally, he also suggested renaming OPEN to 'CLOSED') – click to enlarge.

The Internet Powershares ETF PNQI and the Social Media ETF SOCL both look sick:

PNQI is zig-zagging lower … – click to enlarge.

SOCL is more zagging than zigging … – click to enlarge.

However not only tech and biotech stocks are getting clocked, there is also a lot of selling in consumer discretionary stocks of all sorts, with WFM the latest victim:

You can buy your share in Wholefoods (WFM) at uncommon every-day low prices now. This chart has more gaps by now than the grin of a 100-year old Caucasian goat herder – click to enlarge.

Margin Indigestion

The main unifying characteristic of the stocks concerned is momentum. It matters not so much which industry group they belong to (e.g. TSLA was also down over 7% in after hours trading yesterday, although it remains to be seen if the sell-off will stick). This recent decimation in momentum land has brought about the first decline in margin debt in many moons:

It is actually bad news when margin debt begins to dip after advancing in parabolic fashion for a while. Testosterone Pit reports here why this is usually a bad sign – click to enlarge.

The Testosterone Pit article mentioned above also makes the point that things are getting decidedly cloudier in the Cloud lately, for which Linked-In (LNKD) provides a pertinent example:

Dark clouds in the Cloud: LNKD in round-trip mode – click to enlarge.

We should perhaps also mention that Tweety apparently got too close to the puddycat and had his feathers ruffled quite a bit:

Ouch – this is the lowest price for TWTR yet – well below the level achieved on the first trading day after the IPO by now – click to enlarge.

Mark Hulbert has decided to deliver words of consolation: according to him, newsletter writers have become 'too bearish' on the Nasdaq, which means it will soon rise. For some reason he neglected to mention that when they were 'too bullish' for months on end, the index actually went up with nary a pause.

In fact, looking at the HHNSI, it seems that it is mainly following prices – but  a divergence is in evidence relative to the two lows it made in 2013. There is however no evidence of bearish sentiment anywhere else. In April, the II bull-bear ratio reached a 27 year high, and Rydex ratios remain near the rarefied peaks attained in 2000 for the first time. Here is the HHNSI:

The HHNSI, via Mark Hulbert – click to enlarge.

Tapped out Consumers

There is at least an explanation as to why the consumer discretionary has come under a bit of pressure. It's because consumers themselves remain under pressure, as these two charts from a recent John Mauldin missive illustrate:

Real disposable personal incomes: on the road to nowhere – click to enlarge.

Government transfer payments as a percentage of real disposable income. Only 80% away from full-scale socialism! – click to enlarge.

Conclusion:

There is no guarantee how things will play out from here. Maybe Mark Hulbert will be proved right and the momentum stocks will play 'catch up' again. However, experience tells us that when important market leaders get crushed one by one and investors buy so-called 'safe' stocks instead, the next thing that usually happens is that the 'safe' stocks get crushed as well.

Addendum:

Charts by stockcharts, Mark Hulbert, sentimentrader, Bloomberg

 

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