10 Stocks That Are Ignoring the Very Ugly Market Action
Here's the clearest evidence that this is a strong rotational correction rather than a full-blown bear market.
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Market participants are in a hopeful mood to open Monday, as oil prices soften slightly and bonds strengthen amid a pullback in interest rates.
The underlying logic driving the optimism is straightforward. If oil starts flowing through the Strait of Hormuz again, China, Russia, and other major importers will have little reason to care what happens to Iran. Once the world is adequately supplied with oil, Iran becomes a mild annoyance rather than a critical supplier. That shift in perception alone would be enough to take significant pressure off the market.
Breadth is running very well Monday morning with roughly 75% of stocks in positive territory. The Russell 2000 (IWM) , the Magnificent Seven (MAGS) , and IBD growth names tracked by the Innovator IBD 50 ETF (FFTY) are all leading.
There is some softness in retail names such as Walmart (WMT) and telecom names like T-Mobile (TMUS) but very little negative rotational action elsewhere. It is largely a sea of green but a large reversal is already hitting as I write.
A Tough Bounce to Trust
The problem is that we have seen this before. Several similar bounce attempts over the past two weeks fizzled when it became clear that Iran was going to drag on longer than the market hoped. And even if the Iran situation clarifies, the inflation problem does not disappear with it.
The Federal Reserve policy decision later this week will likely remind investors that interest-rate cuts are not coming anytime soon. That is not a backdrop that sustains a rally easily.
What the Individual Stocks Are Telling Us
One of the most interesting aspects of this difficult market is how many individual stocks have held up remarkably well. This has not been a broad correction. It has been a rotational one, and that distinction matters considerably for how you approach it.
My approach has always been to let the action in individual stocks determine my level of market exposure rather than letting the macro headlines drive the decisions. I stay with the strong names and cut the weak ones. In a genuinely poor market that process leaves me with very high levels of cash as position after position hits its stop. That has not happened here.
I have been publishing the Shark Technical Newsletter for many years. The methodology is straightforward: buy good technical setups and hold them until there is a technical reason to sell. Fundamentals may help the initial thesis but they do not override price action. If a stock acts poorly it gets cut regardless of how much I like the story.
In past difficult market cycles the number of holdings in the newsletter contracts sharply as conditions deteriorate. This time we are still holding 42 positions, which is unusually high for an environment where IBD is recommending exposure of zero to 20%. That number is telling me something about the nature of this correction.
Some of the names we are holding are performing well. CytomX Therapeutics (CTMX) is up 56% Monday to $7.30 against our December 16 entry around $4.10. Other names that continue to act well include Abacus Global Management (ABX), Amprius Technologies (AMPX) , Alto Neuroscience (ANRO) , Atea Pharmaceuticals (AVIR) , AXT Inc. (AXTI) , Perspective Therapeutics (CATX) , Definium Therapeutics (DFTX), and Nextpower Inc. (NXT). My new buy this morning is GigaCloud Technology (GCT).
Checking the charts of those names and the market looks entirely different than the S&P 500 chart suggests. That contrast is the clearest evidence available that this is a strong rotational correction rather than a full-blown bear market.
Game Plan
With that in mind my best advice is to stay focused on stock picking and not let the indexes or the macro environment distract you from what your individual holdings are actually doing.
The headlines are noisy. The charts are honest. Right now the charts of a meaningful number of quality stocks are telling a better story than the index action would have you believe.
Related: Former Intel Operatives Say Middle East Conflict Is Shifting Beyond Oil
At the time of publication, Rev Shark was long AMPX, ANRO, DFTX, and GCT.
