Momentum stocks that helped drive the market's epic recovery are stalling. Get ready for a ‘buyable' pullback.
That means investors should approach with caution over the coming weeks. Because another opportunity to buy the dip might lie ahead, according to Jonathan Krinsky, a technical analyst at BTIG.
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'While it's still too early to say we are getting a more widespread pullback, we are starting to see some early cracks in certain high-beta momentum names today, with many leadership stocks working on potential downside reversals,' Krinsky said in commentary shared with MarketWatch on Thursday.
As Krinsky pointed out, Goldman Sachs Group's long-only basket of high-beta momentum stocks appears to have stalled out just shy of its year-to-date peak from February.
He identified seven momentum stocks that look particularly vulnerable: GE Aerospace GE, Robinhood Markets Inc., HOOD Lemonade Inc. LMND, Netflix Inc. NFLX, Tesla Inc. TSLA, Twilio Inc. TWLO and Upstart Holdings Inc. UPST. To be sure, only three of these stocks — GE, Tesla and Netflix — are components of the S&P 500.
Even if they encounter some near-term turbulence, all of those stocks remain in strong uptrends, Krinsky said. That means any pullbacks would likely prove to be another 'buyable' opportunity.
'To be clear, most of these are in strong primary uptrends, so pullbacks are ultimately buyable,' Krinsky said.
'Tactically, however, we would be cautious of many of these names over the next couple of weeks, especially heading into quarter-end, when big rebalances often take place.'
Since skittering to the brink of bear-market territory in early April after President Donald Trump unveiled his 'liberation day' tariff plans, the S&P 500 SPX has staged what could ultimately prove to be its fastest-ever recovery back toward record highs, according to Dow Jones Market Data. The speed of the move has taken many on Wall Street by surprise.
By the time Trump announced a 90-day pause on many of the tariffs on April 9, the index had fallen by 18.9% from its February record high to its closing low on April 8.
Since then, all seven of the momentum stocks cited by Krinsky have tallied huge gains, with Robinhood up more than 115%, while Lemonade has gained nearly 70%. Even Netflix, the worst performer in the group, has risen by roughly 40%, FactSet data showed. The S&P 500, meanwhile, has risen by 21.3%.
Data from several Wall Street banks show retail investors helped power the market's recovery in April, while their professional peers remained much more cautious.
The index was still about 1.7 percentage points shy of its Feb. 19 record as of Thursday's close, although it tallied its highest finish since Feb. 20, according to Dow Jones data.
U.S. stocks finished higher on Thursday, with the S&P 500, Nasdaq Composite COMP and Dow Jones Industrial Average DJIA all closing in the green.
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