Are We Looking at a Temporary Top?

03/28/2014 12:01 am EST

Focus: MARKETS

Jim Jubak

Founder and Editor, JubakPicks.com

For the week ahead, MoneyShow's Jim Jubak wants you to watch for momentum favorites, because he thinks it takes more than just one or two stocks to lead the market up.

For the week ahead, watch to see whether what we’re about to get, what we’re getting, is a kind of temporary top in the market. What we’re seeing is the kind of action that you get when a market tops and then sells off a bit. We’ve had a really good move up from the February 3 lows, 100 points off of 1750 in a very, relatively, short period of time, and what we’re seeing right now is that the momentum favorites, the stocks that sort of have led us up, like Facebook, like Twitter, some of the IPO stocks, Biotechs, all those have started to sell off. Not big, but we’re seeing people taking profits in them. This is usually what you get when you get a temporary top in the market, as the market tries to take out some of the excess valuations, as people go, “Oh well, at $100 I was willing to buy it, $150 I think it’s kind of steep, so I’ll sell it.” That’s what we’re seeing right now.

What you need to get through that is, you need some sell off to happen, and then new enthusiasm to come back into the market, and you need some sectors to lead us up. One of the reasons to think that this might be a top is, we’re seeing a kind of narrowing of the sectors people are interested in. It’s okay to say, “Yeah, yeah, I want to buy Facebook, I want to buy Facebook, I want to buy Facebook,” but you need more than just one or two stocks, or the Internet sector, or recent IPOs to lead people up. What we haven’t had is really a wide variety of leadership. That technology, by and large, has not been moving up. We’ve had some technology sectors, the Internet sector's moving up. We haven’t had a whole lot of leadership from financials recently, mostly because the federal reserve’s stress tests have made enough stress in the financial sector to take some movement upward out of that. We’re not seeing it in energy, we’re not seeing it in consumers.

Right now, what we’re seeing is a market that doesn’t look like it’s got any leadership, and the momentum leadership, which is a late stage leadership, is selling off. That’s what you need to look at going forward, whether we simply see some retreat and people then come in with more valuations, when valuations are better, so, over the next, say, month or so, look to see what’s going on with the momentum favorites. You don’t need to put any money here, because I think we are going to see some of those move back, pull back. They’re going to look a little better, and what you want to see if some of those momentum favorites having fallen out of favor now go back into favor, as people say, “Oh, well I really liked FireEye (FEYE) at 63 and that’s where it’s down to again, so I’ll buy it here. I want to own that going forward, because that’s a great momentum stocks.” That’s what you’re looking for and that’ll tell you when this is over.

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