As active market participants, we need to be prepared for different market scenarios. Here are the two most logical developments for the rest of the year:
$260 is the line in the sand for the S&P 500. It has been tested numerous times this year. Buyers have consistently stepped up to defend it. If SPY (NYSE:SPY) loses it, we will likely see another quick leg lower and 260 is likely to become a level of resistance. Since correlations between stocks are extremely high during corrections, no sector can really be a safe place.
The bullish short-term scenario is 260 holds and the market rallies on some type of unexpected news. Another variation of this scenario is an intraday break of 260 to lure short-sellers and then a strong rally and a close above it. If this happens, the two types of stocks that you would want to own on the long side are:
- The ones that have held the best so far – enterprise software stocks like Alteryx Inc (NYSE:AYX), Workday Inc (NASDAQ:WDAY), Okta Inc (NASDAQ:OKTA), Splunk Inc (NASDAQ:SPLK), Twilio Inc (NYSE:TWLO), etc.
- The ones that have been hit the worst – Chinese ADRs, high-momentum stocks that have correct 40-50% from their recent all-time highs like GRUB.
On this Momentum Monday, we also discussed the impact of the stock market on the economy and most specifically AAPL and LULU.