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So Much for Stories? What a Tesla Top Could Mean for All Stocks


Cracks in high momentum 'story' stocks are important to pay attention to, as even small dents may indicate that a decline in stocks overall is next.

In recent weeks we have seen some deterioration within these leaders. In the chart below of the Global X Social Media ETF (NASDAQ:SOCL) you can see that it is beginning to underperform the S&P 500 (NYSEARCA:SPY) and has been moving lower over the past week even as the S&P 500 continues to hit new all-time highs.

We are seeing similar weakness in Telsa Motors, the front-runner for top story stock of 2013.

It has failed to hit a new high with the S&P 500 over the past two weeks and its relative performance against the S&P 500 is deteriorating. It is also possibly forming a bearish technical chart pattern known as a head-and-shoulders top.

Overall, investors should take note of the message the leaders are sending here. Their weakness could be an early sign that traders are beginning to lose faith in the "story."

With stocks like Telsa trading at 267x this year's earnings, the maintenance of faith is very important. Without it, they can fall very quickly as we have seen in the past.

At the very least, then, fragility in the story stocks is a cautionary signal with the potential for greater significance if this weakness persists. The models my firm uses for managing our mutual fund and separate accounts are currently in long-duration bonds, reflecting a more cautious outlook until the environment for equities becomes more favorable.

Twitter: @pensionpartners
No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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