As a trader my first objective is to not be wrong. Therefore having the ability to completely reverse direction in positioning and frame of mind is of vital importance. With that being said previously I had been bearish on Twitter, but today’s technical action forces me to change that posture. Clearly we got a breakaway gap today on Twitter on huge volume. Now granted the stock was well off it’s highs for the gap, but in general this type of bullish move will not be reversed suddenly. Twitter is either going to chop sideways from here or move further higher.
Now if the overall stock market enters a bear market I think a stock like Twitter will get destroyed. It’s got a crazy valuation and it’s not even the most important social network. Many of the accounts on Twitter are fake, and I don’t see how this social networking advertising model can just keep growing indefinitely as more companies enter the fray. But until we get a bear market Twitter is probably going sideways to higher.
I heard Ron Insana from CNBC today say “It’s Not a Mania” so you shouldn’t be worried. Thanks Ron. You know what it is though is a Stage 3 potential top in the Russell Microcap Index. That’s not something you’ll ever hear anyone on CNBC say. Notice the momentum in the MACD is about to turn negative too, this hasn’t happened since 2011 in this index. If IWC can break below 70 things might start getting interesting on the downside.
Gold miners are some of the best performing assets of 2014. Not all gold miners are up big but I believe the laggards will join the leaders once gold breaks out definitively. Gold mining ETFs are at the top of the ETF ranks this year. If you plot GDX or GDXJ against SPY on a relative basis a key technical event is unfolding. Gold miners are starting to hold the 50 day moving average on this relative chart and the 50 day is tightening with the 200 day moving average. This is a very bullish formation and a break above the 200 day moving average would confirm leadership in the stock market for the gold stocks.
I can’t count how many times I’ve seen headlines saying the Chinese economy was doomed over the last few years. Yet if you pull up a chart of FXI you simply observe a sideways bear market that is building a long term base. Eventually China is going to break out of this base when no one is looking or cares, which could be now. Most people have given up on China or are scared of it. Most people would rather talk about Facebook or social media IPOs than a new bull market in China.
One thing that I’ve been waiting for since the March correction in the market is the re-emergence of leading stocks making new highs. We did have a rotation into energy, semiconductors, and utilities that helped power the market higher during the March-July time frame. But certain market leaders, companies with new and game changing products needed to get back to making new highs to make this market healthy again. This week we got some nice breakouts in UA, FB, and CMG and AAPL continued to make new highs as well. For now those four horsemen are leading stocks that should help show the direction of the market.
There are plenty of stocks though that had huge moves in 2013 into early 2014 that are severely damaged and taking a long time to recover. I’m talking about a lot of IPOs in the tech space like TWTR, FEYE, YELP, etc. Many biotech stocks are still badly damaged, some are trying to make new highs again though like CELG and BIIB. After hours tonight some big names are getting punished though like AMZN and NFLX has had a pretty serious drop since it’s earnings report.
The point is there is some leadership coming back but there’s still a lot of carnage taking place in certain stocks. One other thing that I find interesting about the action in 2014 is the wide ranging volatility in some of these stocks over multiple months. That action could be indicative of a bull market top if more stocks don’t start making new highs.