Stock Market Early Morning Insights – November 15, 2016

The mid-cap and small-cap stocks continue to lead the broader markets higher as the NASDAQ Composite falters. The Canary stocks as a group have performed poorly as money has flowed out of these stocks into many of the beaten down groups, but several of these former leaders. The shift in sentiment since the election has been dramatic, but seems overdone to me. Banks, Biotech, Steel and Specialty Pharma stocks continue to dominate as the feeding frenzy continues.

Oil and oil related stock to been extremely weak, but yesterday buyers stepped in to reverse the free fall in crude light futures. The crude light hit a low of $42.20 yesterday but is currently trading at $44.65. The trend is still down, but the boost in crude light futures is probably part of the reason for the positive stock index futures this morning.

I know a lot of traders are skeptical of this market rally, but the path of least resistance is currently up for many stocks and groups. Metal and Mining stocks are on fire along with the Biotech and Banking stocks. The XME, the SPDR S&P Metals and Mining ETF is up 13.1% over the past 5 days, but the SPDR S&P Biotech ETF, the XBI is up 18.8% over 5 days. The SPDR S&P bank ETF, the KBE, is up 14% over the last 5 days. This kind of momentum cannot continue at the current rate of change. Stocks that were terribly oversold a week ago are now extremely overbought. Needless to say, this is an unusual situation which cannot continue. The broader market can continue higher, but I would like to see some rotation into other groups rather than the feeding frenzy in short covering that we are seeing.

The NASDAQ E-mini futures are up .60% as I write this, so I imagine that there will be some buying in the oversold large tech stocks. AMZN, AAPL, GOOG, PCLN, and the other major large cap tech stocks have caused a tremendous amount of pain for those traders and institutions that chased them up to their lofty heights. Even if they do base around current levels, I believe it will be extremely difficult, if not impossible, to attain their former valuations in the short to medium term. The action is currently in the small and mid-cap stocks and this is where you should be prospecting, but do not chase extended stocks. The risk/reward is not in your favor.

STOCK MARKET EARLY MORNING INSIGHTS

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