Junk Stocks Leading, Not a Great Sign

This past weekend, I went through about 200 stock charts (yes, I live an exciting life) and was shocked at how bad the setups were. Frankly I could only find about 4-6 charts I’d really consider from the long side. Of course the market has bounced some 6% this week on intervention central (first the Sunday rumors of IMF to Italy and then this morning). That doesn’t mean we have good setups… a lot of the best movers are the junk stocks. I say junk not as a discussion of their business, but on their performance this quarter, half year, year to date, etc. You want leaders to lead… not the broken stocks. The meek shall lead them works well in religious text, but not so good in stock markets.

Bespoke shows us this in a nice table…. the stocks that have had the most mojo this week have been the bottom feeders. That doesn’t mean its not fun to enjoy a big move up if your positioned long but frankly most except the most nimble who are enjoying this week’s gains also ‘enjoyed’ last weeks “worst Thanksgiving ever.” Along with a lot of other things (i.e. European bond yields improving substantially for one), you want a crop of leadership stocks with the strongest relative strength to be your thoroughbreds for a sustained move. Not these guys…

That said it is always fun when coal stocks trade like Commerce One or Lycos circa 1999.

About Mark Hanna 542 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

Follow Mark on Twitter @fundmyfund.

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