Stocks on the Move
Baozun (BZUN), Facebook (FB), and Canada Goose (GOOS) grace the Watchlist for the Week. All three exhibit institutional money flow, so we will look for entries in these stocks on pullbacks or flags as they progress along their bullish trajectory. In addition, several energy names were added that are worth considering.
Watchlist for the Week Ahead
The watchlist also covers candidates that look primed for breakout moves and/or continuation from last week. DNKN, MU, and PYPL have carried over from last week.
Small Cap Stocks and Earnings Season
As earnings season fades in the rearview mirror, investors will shift their focus back to macro issues and trade, where tensions appear to be easing. The White House hinted at an easing of sanctions for Chinese telecom firm ZTE, whereas Beijing appeared to reduce its regulatory stance on mergers and acquisitions. Additionally, reports circulated this weekend whereby China offered to increase its purchases of US goods. That said, headlines remain conflicting as the media said China has not agreed to the US monetary target for narrowing the trade gap.
Trade tensions are one of the key reasons that the Russell 2000 (IWM) small capitalization stocks have been outperforming their large cap peers in 2018. Additionally, we see the rising US dollar as a headwind for large-cap stocks and the second reason for small-cap outperformance to continue. We are considering longer-term options on the IWM on any pullback that would provide a better entry.
In the chart of the iShares Russell 2000 ETF (IWM) we can see the ascending triangle breakout above the $160 level. The fund is above the rising long-term trend line and has exhibited mostly bullish Chaikin Money Flow readings for the past 12 months. Relative strength vs the SPY is strong. The only drawback for the IWM currently is that it is overbought based on short-term Overbought/Oversold Indicators.
Both trade tensions and the rising dollar could have an outsized negative impact on the large-cap companies which generate more of their sales from outside the United States. While the major indexes finished lower last week, the Russell 2000 (small caps) added 1.27% and registered new record highs while the S&P 500 remains about 5% below its record from January.
Stocks and Sector Performance
Focus remains in cyclical, technology and energy stocks, as we start the week.
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