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Morning Commentary

Rotation and Rationalization

By Charles Payne, CEO & Principal Analyst
12/5/2017 10:00 AM
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The knee-jerk bounce from Friday’s selloff faded immediately for the NASDAQ yesterday as tech stocks continued to pull back sharply.  The thing with tech names is they are up so much this year that significant retracements are possible, and it would still be a banner year.  Case in point, check out the pullbacks on these names in just one week or less against year to date performance:

Tech Titans Tumble

One Week

Full Year

Amazon (AMZN)



Facebook (FB)



Netflix (NFLX)



Google/Alphabet (GOOG/GOOGL)




The increased volatility is problematic for investors and especially folks that insist on employing automatic stop-loss measures, particularly the popular 5% stop loss.  

It’s so easy to look in hindsight and think anyone could have thrown a dart and would be sitting on a fortune.  The emotions of investing are hard to discern when looking at long-term charts.  The main point is if you are investing, even as a trader, you should consider when the crowd is overreacting.

On that note, this rotation has been telegraphed for more than a week, and the best way to take advantage would have been to increase exposure in oversold areas like brick and mortar retailers and dirty fingernails stocks.

On that note, last week, I mentioned ORLY and ULTA, the former is up 10% and on our Hotline service, while the latter is up 4% and is on our Swing Strategies service. (If you are not in these services, contact us to get started today at info@wstreet.com).

Now, for folks looking for balance in their portfolio, you should be embracing my dirty fingernails theme: industrial and material names.

The S&P Materials Index closed at an all-time high breaking through a double top. I still love Sherwin Williams (SHW) and Martin Marietta Materials (MLM).

XLB (Materials)

The S&P Industrial sector also burst through a potential double top in a very convincing manner.   One of the standout names over the past week is one I’ve been pounding the table on…Snap on Tools (SNA).

XLI (Industrials)

Keep in mind, all of this is happening before a big infrastructure bill or building the wall has taken place.  The fact of the matter is the foundation of a strong economy is a modern, functional infrastructure, which is already in high demand across the country.

This will be an angst-filled week:

Today’s Session

The markets are mixed this morning, as there is still a lot of caution in the air as we move closer to Friday’s jobs report.  This morning, the U.S. trade deficit for October came in at $48.7 billion, higher than expected, and it’s a negative for fourth quarter GDP.  A record surge in imports should sound bells at the White House, which is beginning to consider the next big move after tax reform (welfare reform has risen to the top).

October Deficits (in billion USD)

We are not forcing the issue this morning as we want to see how stocks trade midway through the session.


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