It's a Market of Stocks

There's an old saying, "it's not a stock market but a market of stocks" and it does a good job of describing the last three months of stock market action.

With FAANMG trading at or near all time highs (up until this Friday with FB and GOOGL getting hit) the mega-cap tech stocks have been dragging the market higher. 

I say "dragging" because the NASDAQ Composite is 11% above it's 200 day moving average, while at the same time only 34% of stocks in the index are trading above their 200 day moving averages. Breadth is not good. 

Understanding where we have been and where we currently are is important in managing risk.

The below channel in QQQ goes back 10 years. The risk/reward doesn't look very good if you are chasing tech stocks higher at this point in time. But then again, that's what Stanley Drukenmiller thought back in May.

Warning signs aside, there are still many "trending" stocks that seem to move higher regardless of the rest of the market.

The coronavirus shut people in and forced them to work and spend a lot more time at home. That only fueled the fire for stocks like Zoom (ZM), Peleton (PTON), Shopify (SHOP) and Teledoc Health (TDOC)...

Then there were the protests/riots that created enough fear to increase the demand for guns, ammo and safety/security related items. Or at least that's what the stocks would lead you to believe. 

The "guns and ammo" trade is working well for shareholders in Axon Enterprise (AAXN), Sturm Ruger & Co. (RGR), Vista Outdoor (VSTO), Smith & Wesson (SWBI) and Wrap Technologies (WRTC). 

And the most obvious trend is the search to come up with a vaccine for COVID-19. That woke up biotech and medical device related stocks. There are a lot of names in this space and the narrative changes daily but you can get the idea by looking at the related ETFs.

If you are looking for opportunities to profit in this environment, it makes sense to start your search with stocks that have been showing strength and trending higher even when the market stumbles.

If you are active in this market be sure to position sizing accordingly in consideration of the heightened volatility and potential risks to this sharp rally from the March lows.

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