The Next Market Leaders - 10/19
Markets have, so far, been stood up at the 21EMAs, and choppy volatility remains rampant. While it does feel like a short-term bottom has been carved out after the extreme negative sentiment and potentially the worst of the economic news baked in, sector leadership remains extremely narrow with really only oil stocks looking at all decent.
Stock setups don’t have to accompany a market bottom. It can take months for proper growth setups to build out, but when they do, big money can be made in a short period. It’s not that time yet. Whether the market has made a permanent or temporary bottom is blithe. Over the next few days, I’ll be watching for signs that the market can provide a tradeable rally up to the 50 or 200-day moving averages into the end of the year.
There are a few stocks that have broken out through buy points and continued higher on volume, identifying themselves as potential leaders. It’s barely a handful, and for every one of these, there were several others that faded back down through key areas, so it was tough to execute on these from a risk perspective. That being said, we can continue to watch them for future low-risk buy points when the indexes are (hopefully) acting a little less unsure of themselves. Let’s get into it!
The Nasdaq has been able to remain above the short-term moving averages for the past few days, though it is just above the key level in futures trading tonight. Watching for the 5-day MA to hold in tomorrow’s trading.
There has yet to be a close above the 21EMA and net highs/lows remain down after coming very close to flipping yesterday with just 2 lows.
The Nasdaq opened above the 21EMA yesterday but quickly sold off. It continued lower today, but it remains above the previous support level in orange. Watch for this level to hold and for a close above the 21EMA. Trading below support, and especially below the YTD low set last week, and could cause capitulation from the recent dip buyers, of which I’m sure there have been many with these FOMO-inducing conditions.
The S&P-500 closed at the 21EMA yesterday, but has not been able to confidently hold above it as it traded back lower today. I’d expect a more powerful move through this level for any sort of sustained rally. If that doesn’t come in the next few days, I’ll look to stay well out of the way.
International Seaways (INSW) crossed the $37.75 on light volume and is up over 10% - a good place to take some profits in this environment. Depending on the market action, I’d consider this one on a retest of the breakout area, or else we’ll have to wait for another buy point to form in this potential leader.
Stocks on Deck
The setups below are ideas, not outright buys; placing a trade is discretionary and depends on both the price action and volume. To succeed, you’ll need to make the trade your own based on your rules for entering and taking profits, and always use a stop-loss!
AEHR Test Systems (AEHR) is showing solid relative strength and excellent volume characteristics, especially for the bleeding semiconductor sector, after having crossed up through the double-bottom buy point at $17.75. It moved quickly after a gap-up. I’ll be watching this one for another buy point to build out, and would consider it on a test and hold of $17.75 with light volume.
Ardmore Shipping (ASC) is another petroleum shipper that has rocketed up into new highs and beyond on above-average volume. After a 30% move in 6 days, it needs a rest, so I’ll be watching for a secondary buy point to develop.
Diamond Offshore Drilling (DO) has firmed up a bit in recent months, and formed a buy point around $8.50 that it closed just above today on good volume. If I saw good volume coming in during tomorrow’s trading, I’d look to buy as close to $8.50 as possible with stops at today’s low.
Sigma Lithium (SGML) is a winning stock. It’s been tough to trade with all of the volatility sweeping potential stops, which just means that the buy point has to be very precise. It’s too extended to consider here, but keeping this one on watch for a better buy point.
That’s all for tonight! See you back here on Sunday night for an update on our stocks.