For the first time since 2012, investors are contending with some serious market volatility. The vicious whipsaws were on display Tuesday as stocks launched higher after the both the Russell 2000 and the Nasdaq Composite threatened to fall below their 200-day moving averages for the first time in three years.
Click to Enlarge The selling has been led by a breakdown in momentum stocks that hedge funds and retail investors alike piled into. Many are already down more than 20% from their highs.
And while that has been a drag on parts of the market — especially the tech- and biotech-sensitive Nasdaq (which was down 7% from recent highs) — we haven’t seen the damage hit the overall market really hard just yet: The S&P 500, for instance, is only down 1.6% from its all-time high. The credit markets are also holding up, with corporate bonds resilient.
But like a cancer, the weakness is spreading. Over the past few days, airline stocks — also an area that enjoyed strong price momentum over the last two years — started rolling over.
Here are three momentum stocks at the center of this new selling pressure that, while bouncing a bit today, have already succumbed to bear markets of their own. Like a cancer, you should consider cutting them out of your portfolio. And if you’re more aggressive, they are attractive short side or put option candidates.