Momentum Growth Stocks are not working

Momentum Growth Stocks are not working at all, so stay out of this category of stocks. This category does give the best price performance when it works.

Money Flow from Big Cap Dividend Stocks to Big Cap Growth Stocks

When Money moves from Big Cap dividend paying value stocks to Big Cap Growth stocks, it causes a slowdown in the price performance of dividend paying stocks. However Growth stocks do not start to move up immediately. There is a wait period before money starts to move into Big Cap growth stocks and during this wait period stock prices fall.

The length of the wait period determines how long the correction or “basing” will last. The depth of the correction will depend on how much money moves out of Big Cap Dividend Paying stocks. At some point when prices of Dividend Paying stocks falls to a point that the yields are very attractive again, money will stop flowing out from them. So in dividend paying stocks there is a backstop on how far the prices can fall.

Stock Market Analysis

The area to be in is big cap stocks. Big Cap dividend paying stocks were working very well till now. Now Big cap growth stocks are also starting to work. Some Money will move from Big Cap dividend paying value stocks to Big Cap Growth stocks, this will create a slight slowdown in the performance of dividend paying stocks. We can see that in the numbers in the chart below. Numbers for DIA are not as good as numbers for SPY and QQQ.

Momentum Growth Stocks are not working at all, so stay out of this category of stocks. This category does give the best price performance when it works.

Market Breadth Ratios are weak

Growth momentum leaders are still the weakest category. Market Breadth Ratios are showing that. Market Breadth Ratios are a very good indicator to gauge the performance of growth momentum stocks. We should wait for these numbers to improve before we invest in them.

Read the blog of August 11, 2012 also, to see what is working in the market currently.

What is the Market telling us currently?

All three market indicators SPY, QQQ and IWM are showing upward trends. See the chart below to understand what category of stocks these ticker symbols represent. The highest "speed of uptrend" is on SPY. This means that the stock prices of companies in SPY (ETF for S&P500) are in a clear uptrend. The highest "thrust in uptrend" is on QQQ. This means that stock prices of companies in QQQ (ETF for Nasdaq 100) have started their uptrend and should carry on, since the thrust is high.

The numbers for IWM (ETF for small cap) are not as strong as for QQQ and SPY. This means the stock prices for companies in IWM are showing a weak uptrend.

Thus the area to be in is big cap stocks. Big Cap dividend paying stocks were working very well till now. Now Big cap growth stocks are also starting to work. Some Money will move from Big Cap dividend paying value stocks to Big Cap Growth stocks, this will create a slight slowdown in the performance of dividend paying stocks. We can see that in the numbers in the chart below. Numbers for DIA are not as good as numbers for SPY and QQQ.

Growth momentum leaders are the weakest category. We should wait for their numbers to improve before we invest in them.

Market Breadth value are still weak

Market Breadth values are still showing weakness. Growth stock performance has started to improve but is still not ready for investing in that category.

Investing in dividend paying value stocks is working.

Market Breadth Ratios are still weak

The Market Breadth Ratios are still weak. Investing in growth stocks is not working in this environment.

Investing in dividend paying value stocks is working but currently there is a downward pressure on prices, when looking at both the weekly and daily time frames. This means that on a weekly time frame it may be another 4 to 5 weeks before the downward pressure on prices dissipates. In the meantime do not add any more money to your portfolio. Read the blog of July 31, 2012 for a detailed analysis of what is being said on today’s blog.

There is an important rule to remember in investing, that if the market does not behave the way you expect it to behave, and your method of analyzing the market is sound. It does not mean that your methodology is wrong; it means that something “bigger” is at work. This should prompt you to step back and reassess the underlying trends.