The Next Market Leaders - 10/23
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Markets lifted after several tweets from a Fed insider pointed towards the likelihood of a pivot in December after a rate hike in November. Many interpreted this as a leak from the Fed to assuage uneasy bond markets. The S&P-500 put in a follow-through-day, a signal for a potential new bull market, but there were several conflicting signals. There were very few growth stocks moving up and away on high volume; most traded on low volume until options expiry at the end of the day adjusted the numbers. Individual stock net lows accelerated. It’s not exactly a clear picture, but 2022 has taught us that the market is not going to make it easy. The ability to adapt is vital.
Oil and energy-related stocks like oil transporters are leading the way, along with other commodities including precious metals, likely in anticipation of a Fed pivot before inflation is tackled. It’s great to see participation by semiconductor equipment and materials, a more traditional growth sector, and though it looks like an oversold bounce off the bottom, there are a few stocks acting very well including AEHR.
Given the follow-through-day and increasingly positive action in the indexes, it’s time to slowly start increasing exposure as things start working. I’ve listed several setups that I’m watching into tomorrow for pilot positions, and I’ll ramp up fairly quickly if they start to show a profit while indexes are holding key levels for a performance push into the end of the year. If things start failing, I’ll manage risk swiftly. Let’s get into it!
Index Update
The Nasdaq is now above the falling 21EMA and short-term moving averages, but net highs/lows remain down, and interestingly accelerated on Friday. The progression of these indicators over the past few weeks show that the index is just begrudgingly moving upward. I suppose that’s to be expected in a bear market with a heavy overhead resistance, but it doesn’t exactly exude confidence for a big upward move.
The Nasdaq closed just above the declining 21EMA on below-average volume. This tech-heavy index is lagging the S&P-500, but could have legs to the 50-day or even the 200-day moving average.
The S&P-500 is leading the way higher as it closed convincingly above its 21EMA on high, follow-through-day volume. It’s coming up on a key resistance area around 3,800, through which a breakout would signal a double-bottom. I’d like to see a retest and hold of the 21EMA before that happens. The target would be the 200-day moving average.
Stock Updates
International Seaways (INSW) is up nearly 10% from the first buy point. It broke out to new highs at $40 in late trading on Friday. I’m watching to buy this one on any weakness - perhaps a test of the 21EMA.
Aehr Test Systems (AEHR) is another leader that has been acting very well after breaking out from the double-bottom at $17.75. It does have a ways to go before 52-week high territory around $27, so I’ll be watching for another entry point before then.
Best Setups
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!
Energy stocks, particularly in oil, have been leading the market higher. Let’s review a few below that have nice patterns set up and aren’t too extended to consider. All of these stocks have stellar earnings and revenue growth, but they are reporting Q3 earnings next week, so be careful carrying positions over earnings unless there is a profit cushion.
Marathon Oil Group (MRO) printed an inside-day on Friday, accentuating the volatility contraction it has undergone over the past week or two. Now there’s a clear breakout point through which volume needs to come in. I’m watching for a move through Friday’s high at $29.20 with stops at $28.30. Earnings 11/2.
Devon Energy (DVN) is only 6% off 52-week highs and closed above resistance at $74 on Friday. It can be bought if it holds above $74 tomorrow with stops at $72, and added above $75.30 for a double-bottom breakout. Earnings 11/1.
Cheniere Energy (LNG) is a natural gas company that has firmed up in price action on the right side of the base. The buy point is a move to new highs at $179 on heavy volume with stops just below $175.
Constellation Energy (CEG) is a recent IPO providing energy utilities in the US and is poised to benefit from the Inflation Reduction Act. After a 30% gain from the recent breakout, it has been trading in a tight range above the moving averages. The buy point is a breakout to new highs at $90 on high volume with stops $3 lower.
Now let’s move on to other stocks.
Ardmore Shipping (ASC) is forming a short bull flag after breaking out to new highs last week. This one looks good to follow INSW higher, but ideally it would put in a few more days of price action in the flag before breaking out through the $11.85-12 area.
Clearfield (CLFD) has been quietly working off the massive gains back in July/August and now is looking to move back up the right side of a potential cup with handle base pattern. A move up through $108, especially with high volume, is an early buy point with stops just below $105. It trades a bit thinner so position size accordingly.
ShockWave Medical (SWAV) is another thinly traded issue that is consolidating on decreasing volume and presenting a good buy point through the 50-day moving average and descending trendline. It isn’t the best pattern, but for a stock with stellar earnings and revenue growth, I’d consider a position on a move through $285 on above-average volume.
That’s all for tonight! See you back here on Wednesday night for an update on our stocks.