Markets have closed at daily highs for two days in a row after moving straight off the bottom on Friday, not seeming too concerned about tomorrow morning’s CPI event on the surface. Many of the biggest gainers were from the most oversold stocks, and follow-through on quality stocks from buyable patterns remains fleeting. Some are fading immediately or getting wrecked after setting up promisingly like HALO, SMCI, and ELF.

2023 has been a very difficult trading environment with conflicting signals, and that’s likely not going to change immediately after tomorrow’s inflation data release. It feels like we’re making progress towards healing, but not there yet.

It all depends on the data, but I’m not sure that the reaction will be as binary as many expect. Be very careful adding too much exposure too quickly unless you thrive during major volatility events. There will plenty of opportunity to add on the way up if it has legs, and there is a long year ahead of us. There will be times where our conviction is higher and good trades will come easier. In the meantime, take it day by day.

I’ve listed a few trade ideas I’m taking into tomorrow, though all depends on which way the wind is blowing after the CPI report. Let’s get into it!

Index Update

The Nasdaq finished Day +3 above the 21EMA with net highs and lows up for 4 days straight. The 10-day MA is still below the 21-day, a testament to the fact that the index has moved up straight off the bottom, but it is rising. These indicators are now green and give us permission to get long exposure with proper setups.

The Nasdaq powered up through the 50-day moving average on above-average volume after holding the 21-day MA yesterday. It’s coming up on a congestion area from November and December that could serve as resistance. The 200-day moving average in white is still screaming lower, and until price is trading above this area, the long-term trend remains down.

The S&P-500 took a rest at the 50-day MA and perfectly tested the 21MA as support before gapping up and closing strong today. It’s now in between the 50-day as support and 200-day as resistance. The upper resistance line in orange is a potential target for this rally, and a flip of this area would signal a long-term trend change.

Stock Updates

Elf Beauty (ELF) broke out through the pivot point at $57 on 2x average daily volume and then proceeded to aggressively sell off on high volume back into the base. I sold most before the stop at $55.50 to protect my cost basis. The stock continued much lower on increasingly large volume, and that’s why we have stop-losses in place.

Aehr Test Systems (AEHR) has continued to squeeze out shorts after the positive earnings report and highest volume in a year. This looks very strong, but it’s clearly extended, so I’m watching for a better buy point to present itself.

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!

Madrigal Pharmaceuticals (MDGL) is one of the best looking patterns in the heating-up biotech space. It’s barely giving up any gains from a whopping 400% move on the highest volume ever, instead consolidating tightly above the 10-day MA. It’s worth a shot with a smaller position size on a breakout through $303 with stops at $288, today’s low.

Wabash National (WNC) is in a flat base after a 50% move up the left side. The moving averages are bunching together to form a launch pad and it printed a new high in relative strength yesterday. It could be ready to break out, and I’d look to buy on a high volume move through $26 with stops at $25.25.

Netflix (NFLX) is in worse technical position than I normally consider, with a lot of overhead resistance and the 200MA pointing down, but it could work for a quicker trade if the indexes are moving on CPI tomorrow. It’s above all short-term MAs and it printed an inside-day today, so there’s a low-risk trade to buy at $330 with stops at $321.

That’s all for tonight! If you have any feedback or questions, just reply to this email or hit me up on Twitter.

See you back here on Sunday night for an update on our stocks.

Cheers,

Dan Dormody

The Next Market Leaders

The Next Market Leaders - 1/11