Folks, rotation is good ultimately but not for momentum stocks, and this has been going on for months, not days.
Tim Seymour
Your ticket to the “Momo” dance has ended and your glass slipper is missing… Growth to value is not an overnight event. Price actions (and now fund flows) in EM tell that story. 18 of 21 days into EM over SPX trade working. iShares MSCI Emerging Markets ETF (EEM, quote) could go to 44.75 before hitting multiyear resistance, but trade it actively and take some profits here…or around 42.60 before reload through Early May…EM has outperformed Japan by 1000 bps since March!…On US 10yr: Watch 2.50 as level where if broken start selling EU banks, and more Euro assets as markets will be saying they don’t trust the Fed…Single stock shorts are working great for PM’s, and this is a great time to be a stock picker especially when you take sector views…Long energy/short IT as a trade has been working for 2 months now…LONG ENERGY SHORT TECHNOLOGY. This will continue to work….Ultimately markets don’t crash with this high levels of cash and low levels of leverage, and this high level or bearishness coming into this period….On the US economy, labor market trends (back to May 2007 on jobless claims) are very constructive for consumers and banks. I’d be buying this bank weakness, especially money center banks. We knew mortgages would be weak, and FICC trends are not great. Buy operating margins to higher rate environment are solid at JPMorgan (JPM, quote), Wells Fargo (WFC, quote), Citigroup (C, quote) and Bank of America (BAC, quote)… Therefore, Im watching BAC earnings on Weds 16th as big focus of week. By then I say banks are ready to rally back off this weakness that started well into earnings season. I like Citi for highest operating leverage and cheapest valuation… Next week I also care about CSX Corp (CSX, quote) and Kansas City Southern (KSU, quote) as transports holding up…Capital One (COF, quote – more consumer loans credit cards), and General Electric (GE, quote – solid energy infrastructure, aviation businesses with order books that go on forever!)…I think overall market can trade lower. Some folks looking at Fibonacci 23% retracement on SPX which brings you well through the 200mda (1760) that people are watching.
Enjoy the weekend! -TIM