A Momentum Miracle

The major averages remain stuck in a range this week as traders continue to search for an edge following this month’s abrupt slide.

Gluttons for punishment will eagerly away Fed Chair Jerome Powell’s speech this morning at Jackson Hole. Powell might drop hints as to how the Fed will approach additional rate cuts in the coming months — or he might not.

“Markets will hang on every word of Mr. Powell’s speech for clues about the Fed’s next moves, including at its Sept. 17-18 meeting,” The Wall Street Journal declares. “The economic outlook has darkened somewhat since the Fed cut rates last month, largely because an escalation of trade tensions by President Trump and weaker global growth data have led to a large decline in U.S. government bond yields.”

Nothing new there…

Meanwhile, many of our strongest trades continue to work despite the recent bout of volatility that has whipped investors into a frenzy.

Why? Because, despite an inverted yield curve and concerns of an impending global economic slowdown, many momentum stocks continue to outperform their peers. In fact, we could be entering a perfect environment to jump onboard the market’s most impressive high-momentum stocks.

“Since 1978, when the yield on 10-year Treasuries has been more than 2 percentage points higher than the two-year yield, high-momentum stocks in the U.S. have outpaced the low-momentum group by an average of 3.4 percentage points in the following 12 months,” per a recent note from Oppenheimer analyst Ari Wald, via Barron’s.

Anecdotally, we can turn to our short-term portfolio to see this phenomenon in action. Just look at the year-to-date performance of software darling Shopify Inc. (NASDAQ:SHOP) compared to the Nasdaq Composite:

SHOP

SHOP is an extreme example, of course. But you can clearly see the May and August pullbacks had virtually no impact on SHOP’s relentless push toward higher prices. It’s now up 180% in 2019… and counting!

Following up on yesterday’s retail phoenix, Dick’s Sporting Goods (NYSE:DKS) is joining in the fun. 

Dick’s revealed its first optimistic earnings report in recent memory, helping push shares higher by more than 10% Thursday morning before the stock retreated to finished the day with a gain of almost 4%.

Previously, DKS had been suffering the fate of most other specialty retail locations as it lost business to e-commerce competitors. It’s certainly no J.C. Penney, but shares have fallen more than 46% off their 2016 highs.

CNBC reports that increased sales on popular items from Nike and YETI have contributed to the recent optimistic attitude.

In a move that will either hurt or help the chain. Dick’s Sporting Goods also announced it will experiment with removing the hunting category and all firearms from stores, starting with 125 locations, reports MarketWatch.

The store plans to replace guns with high volume items like shoes and apparel. Historically, removing guns from the store has helped same-store sales growth.

Finally, let’s check in on this week’s wildest “deep state” storyline before we sign off for the weekend.

Overstock.com Inc. (NASDAQ: OSTK) CEO and tin-foil hat enthusiast Patrick Byrne has resigned. Johnathan Johnson, a member of Overstock’s leadership board will act as his replacement.

The decision came after Byrne made comments about his involvement in the “deep state,” reports CNBC. In a counter-intuitive move, shares for Overstock went up as much as 17% as the news broke Thursday afternoon.

As for Byrne’s role in the “deep state,” that’s where things get hairy. Supposedly, he was romantically involved with Russian agents while simultaneously part of investigations related to the Clintons.

Details are vague for the moment on what any of that means, but we know Byrne is out as CEO — so he shouldn’t be able to do any more damage to OSTK’s recent comeback. Shares finished Thursday trade higher by more than 8%.

2019 has been an interesting year — and it keeps getting weirder by the day.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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