Net Confused

July 30, 2014 4:21 PM

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Net Confused

When it comes to investing, there is no canary in the coal mine. I hate to burst your bubble but whichever straw eventually breaks the camel’s back will only be obvious in hindsight.

With that said, I do find it fascinating to watch how different areas of the market behave and right now we are witnessing Consumer Staples- which held up really well earlier in the year- roll over on heavy volume.

I posted a few charts and took away the candles, leaving only moving averages. This exercise allows us to take a less noisy look at how these securities have been trading. As you can see, the shorter term moving averages on consumer staples just fell off a cliff. All year we wondered how long could the high beta names break down before it spills over to the broader market; perhaps we are starting to see that now. 

But not so fast; what’s really interesting is that staples are breaking down just as the Facebook’s, Twitter’s, and Yelp’s of the world are exploding higher. We continue to see money rotate as the market corrects through time. After a nearly thirty percent return last year, I would say this is the best possible scenario bulls could have hoped for heading into 2014.

So where does that leave us?

Large caps are strong while small caps are weak, giant banks are above their 20-day moving average while regionals can’t get above their 200-day, social media stocks are on fire while semi conductors are cooling off. The only thing that’s crystal clear is that the market is sending mixed messages. People will pay attention to whatever supports their bias. I’m okay with being net confused. 

Photo by Giulia Torra

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