Wednesday, May 15, 2013

Shades of 1998

Last week we saw the birth of the momentum stock.  Before last week, the strongest stocks were in the high dividend paying, safety, defensive names.  Utilities were trading like tech stocks.  Now, we've turned the corner into an infatuation with high growth, high potential, and low profit companies.  The monster short squeeze in NFLX in January was an omen of this new momentum craze that is infecting this market.  When stocks just keep going higher and higher, eventually you get a rush into speculative names.  It was just surprising that it too so long. 

The double barrel earning releases of highly shorted TSLA and GMCR has been the fuel to ignite this run towards the momo stocks, most with high short interest.  TSLA is the leader, as it is driving the biggest buzz and trading the most dollar volume.  You have the solar power contingent led by SPWR and SCTY.  You have the internet contigent led by NFLX.  And you have the 3D printing group led by DDD.  And then there a bunch in the miscellaneous category, those with high growth such as SODA and GMCR.  This market reminds me of the one that we saw in the middle of 1998, when the internet stocks suddenly caught fire.  This time, it isn't just one theme, but a group of high flyers from various industries that is attracting the momentum money. 

The question is how long does this momo fever last?  The longer it lasts, the higher these stocks go.  Since it really only started in earnest last week, I expect it to last for quite some time. 

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