The Next Market Leaders - 10/3
Markets rallied off of year-to-date lows on news of the UN calling for the Fed to change course with its interest rate hikes, citing the risk a policy-induced global recession. Most signs point to this as a classic short-covering rally after 8 of the last 9 trading days closed lower. Futures are up another 0.50% tonight.
Large, one-day rallies are a frequent occurrence in bear markets and prone to failing within the context of the larger downtrend. It’s important to maintain discipline by using smaller size and playing tight defense if making any buys. I haven’t made any moves yet, and I won’t be in a rush to do so until markets are above the 21EMA at a minimum.
Not a whole lot has changed with the market internals and stock setups. Most stocks got busted up in last week’s distribution, but there are a precious few that held up in their accumulation patterns quite well. I’d consider a few pilot buys with tight stops if these break out with heavy volume while the indexes continue to move up. Let’s get into it!
The Nasdaq moved up through the falling short-term moving averages today and the McClellan is back to a more neutral reading after multiple weeks below 100. Net highs/lows remain negative.
The Nasdaq held YTD lows today after an undercut in premarket trading. Still, volume was low, and look how far below it still is from even the 21EMA in blue. I wouldn’t be surprised to see a rally up to this area before continuing lower.
The S&P-500 undercut YTD lows on Friday and came back up through that level with some power today. It finished up more than the Nasdaq thanks to oil/energy stocks rallying the hardest. After the failed breakdown, some shorts might be trapped with the big volume bar Friday, and that could provide fuel for higher prices if the rally can be sustained for more than a few days.
Digi International (DGII) is one from last week that was within the flat base pattern and flashed relative strength new highs before price. The stock barreled through the buy point at $36 and closed nearly $1 higher as one of the best performers on my radar today. Look for $36 level to hold as support tomorrow and sell quickly if it doesn’t.
Rivian Automotive (RIVN) was a short-sell on the list that broke down through the 5-month bear flag pattern at $33 and continued $2 lower, but sell volume was just average, so I skipped it. This could be one to sell-short if the indexes get rejected at resistance in the coming days.
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!
Without a doubt, First Solar (FSLR) is the best stock pattern in the market. It’s basing after a nice price move over the past few months and the RS line has continually marched up. The only problem is that everybody has their eyes on it because there’s not much else. The buy point is a breakout through $140 with stops at $136.
Enphase Energy (ENPH) hasn’t proved to be quite as strong as FSLR, but it can move in sympathy if the latter can breakout to new highs. If so, I’d consider a high-volume move through the 21EMA followed by an add if it’s able to move through $310.
FREYR Battery (FREY) is a more speculative play, but the price action has been very constructive. After trading up on the highest volume ever a couple weeks ago, it’s now consolidating just below all-time highs. Looking for a powerful move through $15 with tight stops.
That’s all for tonight! See you back here on Wednesday night for an update on our stocks.