Here Come Summer
The market continued its march back to previous highs this week, all while experiencing a continued outflow of money from mutual and hedge funds. In other words, hedge funds are beginning to pull all of their money out of the market, raise cash, and leave stocks behind. You might be wondering why this could be viewed as a good thing; if hedge funds are pulling their money out, shouldn't you?
The fact of the matter is, the market doesn't have any reason to slow down, nor is it showing any signs of doing so. The economy is strong, with bullish housing numbers and employment levels. The Fed is noting real, organic growth in the economy, and the numbers being reported each quarter don't lie - companies are improving.
Even more importantly, all of this selling that the bigger institutions are executing doesn't seem to be taking the market any lower. When it comes time for the supposed drawdown, who's left to sell? There will be much less money invested, and therefore any drawdown will be much less severe. This money will have to, sooner or later, reenter the market. When it does, it should send the indexes up to new highs.
We're still prepared for a small short-term correction, as the one we saw two weeks ago is usually followed by a similar, smaller dip. We are prepared to buy into more weakness here, as always, but with the tortoise-like summer market movement approaching, we're seeking to add more long-term options and don't want to initiate too many new positions.
Takeaway: Everyone wants the market to go lower, but it doesn't seem to want to. Usually when everyone is screaming "Top!" it means that there isn't one coming in the near term. Market tops happen when people are throwing their money at the market, not taking their money out of it.
As we predicted last week, GOOGL and AMZN rallied to new highs, pushing towards the $1,000 mark and lifting the other FANG stocks with them.
We expect this to be the week that GOOGL and AMZN break the $1,000 mark together and expect the rest of the FANG group to rally alongside their ascension; though we don't anticipate much of a rise from the group over the duration of the summer. You should begin to look at sectors that have been beat up over the last several months and are lagging behind the rest of the market, as those are where the most lucrative opportunities lie.
We are coming into very volatile times in energy, with stocks bouncing up and down based on the shaky price of oil. While long-term we are still believers in this group, we want you to be careful on picking an entry point here.
Financials are going to make this list a lot this summer. The setups are too nice, and the fundamentals backing the large banks is too good to pass up. We like BAC and GS most, but have our eyes on MS, which is more volatile, but potentially more rewarding.
BOFI is also an interesting financials play, with about 40% of the shares sold short. If the sector rallies, we could see panic buying in this stock as shorts race to cover their positions.
Industrials have been coiling up for awhile now, and can't seem to break the overhead resistance. We don't see them going much lower, especially given the slow summer months. If there's another dip in the share prices, we're looking to add to CLF.
Long Term: We'll Try Anything ONCE
Spark Therapeutics Inc (ONCE) is a biotech company involved with gene therapy, and it's interesting to us on both a fundamental and technical level. Check out the chart below, and try to refrain from shamelessly salivating.
Not only is ONCE in a great spot for a move higher on a technical level, but they recently completed their FDA application for a gene therapy candidate to repair vision loss. If approved, this company would be responsible for the first gene therapy in the United States for a genetic disease.
As with all biotechs, this is a riskier investment; any FDA-related news could swing the share price up or down. That being said, there are clear catalysts in the near future, and as this is trading near the bottom of its range, ONCE is poised to perform well over the next several months.
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- The Minotaur Team