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Everybody Back in the Pool?

Stocks pushed higher to begin the trading week, building on a strong Friday rally.

This New Year’s push is finally attracting some fresh money as investors dip their toes into the water and snap up some riskier assets. Volatility is creeping lower, offering calmer trading conditions for the first time since the December meltdown.

But there’s no shortage of potentially market-moving news on the horizon. A national presidential address is looming large this evening. Then there’s the partial government shutdown, trade war negotiations, and earnings season waiting in the wings.

Investors are feeling more optimistic this morning. But we’ll have to see if the bulls can weather some headline risk soon enough…

Let’s take a quick break from today’s market action and say a quick prayer for what’s left of Sears and Roebuck.

Sears Holdings Corp. (OTC:SHLDQ) is facing certain death after Eddie Lampert’s last-ditch effort to save the company crumbled over the weekend. The banks shut down Lampert’s play to buy some of the company’s best-performing locations, which will now ultimately lead to a complete liquidation of Sears stores nationwide.

When we last checked on Sears in October, the company had just filed for Chapter 11 bankruptcy after hiking the long path to irrelevance for the better part of the past decade. Sears began its short reorganization process with the closure of more than 140 unprofitable Sears and Kmart locations. The stock even posted a quick recovery after grabbing a $300 million loan to keep the lights on during bankruptcy.

Of course, bagholders were left with nothing more than a dead cat bounce. Due to the bankruptcy, Sears shares quickly found their way onto the pinkies. After the Lampert buyout fell through, another frantic rally is giving way to lower prices. As of yesterday’s close, one share of Sears fetched 30 cents.

SHLDQ

Rest in peace, Sears. For what it’s worth, I’ll forever cherish the memories of fighting with my sisters over your Christmas toy catalog every year of my childhood…

Aside from Sears, some other 2018 losers are regaining their footing this month.

Last week, I showed you how former Dow darling General Electric (NYSE:GE) was springing back to life following an impressive post-Christmas rally. GE’s comeback move is accelerating this week, with the stock posting a gain of more than 6% on Monday. It’s now up a staggering 28% from its December lows.

Speaking of lovable losers, small-cap stocks are also attracting some new money this year. The Russell 2000 posted another strong performance yesterday, gaining nearly 1.8% on the day. Meanwhile, the S&P 500 gained just 0.7%.

RUT

The small-cap Russell 200 is now up more than 4.2% year-to-date, compared to a gain of just 1.7% in the S&P 500.

That’s a strong start for the Russell. But it’s also important to note that small-caps have plenty of ground to make up. These risk-on plays were hit much harder during the Q4 correction and continue to trail the major averages since the market topped out in early October.

Finally, our hapless homebuilder stocks are finally starting to thrash the major averages.

The iShares U.S. Home Construction ETF (NYSE:ITB) is another loser from 2018 that’s quickly rising from the dead. The homebuilder ETF is now up a staggering 7% year-to-date, compared to a gain of less than 2% in the S&P 500.

When we first jumped back into these stocks in late November, they were finally showing signs of life — just as housing data turned south. New home sales cratered to three-year lows as inventory continued to build, but ITB was inching toward six-week highs.

When we last visited ITB, it was leveling out following its October plunge and rising off a higher-lower to register a nice little breakout. But shares weren’t immune to the December swoon, and the sector posted new lows following a difficult two-day stretch right before Christmas.

Fortunately, it looks like the worst might be behind ITB. The Christmas Eve lows have held strong and the sector has gained 10% in just two short weeks. The false breakdown and subsequent rally put a $33 breakout back in play…

ITB

No, this ITB play hasn’t been a perfect performer for us. As I noted back when we first grabbed shares, the pain might not be over for the housing market. But we could easily snag double-digits on a quick trade if this oversold rally continues to perform. So far, 2019’s action has this trade back on track.

Did you miss this trade alert? Click here to catch up on the action.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Rude Awakening PRO and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing for 13 years. In 2018, Greg’s Rude Awakening PRO portfolio beat the S&P 500 by 14%.

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