Wake Up, Little Susie

Markets got a wake-up call this morning as the government reported a drop in industrial production, notwithstanding positive sentiment reported by PMIs and other gauges. Thanks to zero hedge for the illustration:

Not that this should be a surprise in that markets have been running on Fed-provided fumes for quite some time now. As of last Friday, 47% of Nasdaq Composite stocks were down at least 20% from their highs with the average stock down 24%. Similarly, the Russell 2000 shows over 40% of stocks down at least 20% from their highs, and an average drop from recent highs of 22%. On the other hand only 31 names in the S&P 500 have seen drops of 20% or more this year, as the market focuses on gigacap momentum names.

I set up a equal-dollar-weighted portfolio of momentum marvels on August 15, today is a month later and a quick check shows it down 1.4% including a nearly 4% drop today. The names are AMZN, BIIB, DDD, FB, GOOGL, LNKD, NFLX, PCLN, TSLA and, of course, TWTR. Watch out when the momentum leaders fade, is all I can say. There are no value stories to replace them as leaders for more than a thousand S&P points below here. But folks are obviously trying to rotate into the Dow and S&P anyway, hoping to avoid the treatment being given to the junkier NASDAQ and Russell stocks. Good luck with that.

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