World markets are mixed this morning as the Nikkei looks set to finish a very impressive 2013 strong while European markets and the Shanghai Composite are slightly red. U.S. futures are up small after an impressive extension surrounding Christmas last week.
Friday was a quiet day for the indices but there were some interesting divergences that are worth taking note of. Several laggard sectors led the charge, while many leaders got a haircut.
Social media stocks took a hit after an incredible run over the past few weeks, and look like they could continue to the downside today.
Twitter (TWTR) had gained more than 70% in December but dropped 13.04% Friday as their appeared to be some profit-taking. With a small float and a still uncertain earnings future we could be seeing the type of volatility that could characterize TWTR into the first quarter of 2014. TWTR is down another 3.5% so far this morning.
Facebook’s (FB) sell-off was less exaggerated but the stock dropped just shy of 4% after stretching to new highs earlier in the week. FB has been on a tear ever since it was announced that it would be added to the S&P 500 and 100. The stock is down another 1% in the pre-market.
3-D printing stocks also saw some small profit taking on Friday but are looking better this morning.
3-D Systems (DDD), the sector leader, saw a Red Dog Reversal on Friday to drop 1.36%, but is up more than 1% so far this morning as it looks to get back on track.
Kandi Technologies (KNDI) is a Chinese electric car maker that has gotten sporadic attention from investors in the past and once again claimed the spotlight on Friday. The company only has a sliver of the Chinese vehicle market currently, but with the massive gains we saw in Tesla (TSLA) this year, investors are once again getting excited about the company’s potential.
KNDI jumped 25.94% on Friday and is following through this morning. The stock is up almost 18% so far in the pre-market after a positive article on Forbes helped validate the company. The float is small and there is heavy short interest, so it will be interesting to see whether the squeeze can continue.
China’s Shanghai Composite was strong on Friday and the strength carried over into Basic Materials and Industrials stocks that could benefit tremendously from a resurgence from the Chinese economy in 2014. Coal stocks like Alpha Natural Resources (ANR), Peabody (BTU) and Arch Coal (ACI) and Walter Energy (WLT) were very strong. US Steel (X) made new 52-week highs and looks particularly healthy for additional gains in Q1 2014. Iron ore producer Cliff Natural Resources (CLF) also staged an impressive 6.08% rally.
Watch those Basic Materials and Industrials today to see whether the squeeze continues as many of them carry significant short interest.
Rare Earth metals are also getting a bid to finish the year as Molycorp (MCP) rose from the dead on Friday. MCP gained 14.97% on Friday and is up almost 2% so far in the pre-market. Rare Element Resources (REE) was even stronger with a 20.86% gain on Friday. See if the squeeze continues in the rare earths.
Apple (AAPL) is leading the Nasdaq down slightly in the pre-market as the stock is down around 0.67%. The initial euphoria over the China Mobile deal has subsided and now the question is whether the stock can build on a strong finish to the 2013. Right now there is no compelling set-up.
Overall the market is in a bit of a tricky spot right now after an impressive rally last week without any pull-back so far. We are seeing some exhaustion from leaders and some unusual divergences. I think the best plan is to keep it tight into the New Year and start making plans and working on your process for 2014.
Disclosure: Scott Redler is long BAC, C, MCP, AAPL, FXI calls. Short SPY