EarningsBeats.com Digest for September 4, 2020
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Growth Stocks Suffer Big Hit, Hold Key To September
Well, we knew it was coming. Months of straight-up action in growth stocks, especially on a relative basis to value stocks, left us quite vulnerable in the near-term. I wrote about major sentiment issues in last Friday's Daily Market Report (DMR) to members, this past weekend's ChartWatchers newsletter, and again yesterday in my Trading Places blog at StockCharts. The early, very bearish action on Wednesday morning in big names like Apple
(AAPL), Tesla (TSLA), and Zoom Video Communications (ZM) provided the initial cracks in the foundation. The house began to shake yesterday as growth stocks were crushed. This really wasn't a selective group that was sold. It was anything related to growth, anything that had outperformed since March. Growth stocks (IWF) had crushed value stocks (IWD) since early-2020 and that can easily be seen by the following price relative chart (IWF:IWD):
September is known to be a rough month for U.S. equities, and while I remain steadfastly bullish in the long-term, I also understand the potential short-term implications of a day like yesterday. It would be extremely unusual for these stocks to recover quickly from such a far-sweeping selloff on massive volume. I believe the high on Wednesday could be high for awhile as we get a much-needed period of consolidation/basing before a Q4 rally.
Bull markets can be quite resilient, so moving right back up is certainly possible, but I wouldn't expect it. I'll be watching the above chart to see how the market feels toward growth stocks in the coming days. Until we are able to mark a relative bottom in this chart, expect the NASDAQ to underperform as the consolidation takes place.
Happy trading!
Tom Bowley
Chief Market Strategist
EarningsBeats.com
Better Timing. Better Trades.
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