October has been a comparatively upbeat month for the U.S. stock market after the Labor Department released better-than-expected employment data and hopes rose on suspicions the European Union is getting its act together -- but has anything really changed?
Hard to say. Kapitall reported yesterday that although recent employment data is up, overall household income rates have declined drastically since the official end of the recession -- more so than during the recession period -- and are hardly outpacing inflation.
Meanwhile, it has been the eurozone's economic issues that have taken the majority of credit for high market volatility. The slightest movements of EU politicians have reverberated through the markets, each announcement or mere rumor sending the stock prices into a frenzy.
Now the EU appears to be getting a handle on the sovereign debt crisis. Hopes are rising that the eurozone leaders are about to come up with a credible plan for Greece, as well as recapitalize banks, increase money available for the European Financial Stability Fund, and altogether avert the looming crisis.
"The pressure is on and the noises suggest eurozone leaders are applying themselves to the task. If they deliver at the G20 summit in Cannes early next month, equity markets should finish the year in fine form," said Mike Lenhoff, a strategist at Brewin Dolphin Securities in a research note. (via CNBC)
The markets are predictively rallying around the news.
But other analysts have been quick to point out that these hopes are not based on reality. No concrete conversations have been had, no plans laid out that have been hailed as genius. Overall, the hype is based on fluffy actions that haven't yet yielded results. It raises the question: "How long can a rally based on hope last?"
Moreover, will the rally falter as politicians start to talk specifics, giving the world's analysts more data with which to review the terms of Europe's "progress?"
These considerations raise several questions for investors. Among them, we were wondering which rallying stocks appear most vulnerable to a reversal of the European progress we've seen over recent days?
To help you find ideas, we collected data on about 160 rallying stocks (trading above the 20-day, 50-day, and 200-day moving averages).
Below we've listed the rallying stocks that have seen significant institutional selling. In addition, all of these companies have seen a sharp increase in shares shorted over the last month.
Sophisticated investors like short-sellers and hedge funds think these rallies are going to reverse -- do you agree?
List sorted by distance to the SMA200. (Click here to access free, interactive tools to analyze these ideas.)
List compiled by Eben Esterhuizen, CFA:
1. Polaris Industries
2. Harbin Electric
3. Varian Semiconductor Equipment Associates
4. Tyler Technologies
5. Hornbeck Offshore Services
6. 1st Source
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Short data soured from Yahoo! Finance, institutional data from Fidelity.
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