Stock Trends

Momentum crash

Good morning,

The focus of Stock Trends is individual equities and certainly, there is no better time to be focused on the bottom-up than right now.

As today’s report will highlight, beaten-up industrials, perennial underperforming healthcare stocks and more are all hockey-sticking higher.

However, at the same time, semiconductors and major stocks from the Magnificent 7 are selling off leading to multiple large declines at the index level.

This is a classic momentum crash which is the result of a positioning unwind.

Yes, retail investors often chase performance but the real culprits are usually trend-following hedge funds that are leveraged long in what has been working (big tech and not much else) and short the underperforming areas like IWM. When both sides of the book have to be unwound, you get price action like we’ve seen the past week.

We’ll discuss the top-down view on Monday, but while momentum crashes can mark turning points in relative leadership (like we looked at in this Monday’s report) we rarely see these at major market tops.

There’s a lot we could look at given the elevated volatility so I’m going to simplify today’s report into just two sections:

1. Previous laggards that could have more room to run

2. Support levels on some of the hardest-hit growth stocks

Let’s get into it.

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More room to run

BAC: Bank of America

Recent addition to the Blue Chip Hot List, Bank of America posted its best day since December on Tuesday following earnings. Near a resistance range and with an RSI over 75, there’s elevated risk of a consolidation. However, any pullback or sideways action can be used to add to longs.

CARR: Carrier Global

Carrier Global was a 2024 Base Finder stock and one we successfully traded earlier this year. After a 2-month consolidation, the stock has broken out to new all-time highs.

FAST: Fastenal

We looked at FAST and HII a month ago, calling out the bullish divergences that suggested they were due for a rebound. Sure enough, both they (and the third stock, Home Depot) have surged higher but FAST and HII have the best setups looking forward. If Fastenal is above $65, I like it to challenge the March highs near $78.

HII: Huntington Ingalls Industries

HII has completed an inverse head and shoulders pattern that targets $285. $261 would be a tight stop, $253 would give it more room to breathe.