The Next Market Leaders - 11/13
After the CPI print on Thursday morning showed slowing inflation, markets exploded higher and continued up on Friday in bear-market-bounce fashion to close the week up 8%. The previously beaten-down, oversold, former leaders in the Nasdaq were the ones catching a bid. Of the stocks that were up 3% or more on volume Friday, just 10% had a rising 200-day moving average. On top of that, the high quality names on my watchlist were unable to rally up through logical buy points, with some even selling off. That seems to indicate a lack of institutional bid in these names, at least for the moment.
If the market has bottomed, it could take a few weeks or months for proper setups to form, so don’t be caught chasing inferior setups due to FOMO.
Still, with the markets trading back above the 50-day moving average and internals improving, it’s time to increase long exposure as things start working. It would be great to see some consolidation in the indexes to find out if there is real, secondary demand at support areas, and it would also allow charts to tighten up a bit before continuing higher. The near 10% red to green swing in the Nasdaq over the past three days clearly hasn’t been conducive for that.
Many potential leaders are setting up for breakouts. How these act around the key areas should give us clues as to what the market will do next. Let’s get into it!
One more day of net highs and all of our market indicators will be in the green, after which we’re in the clear for solid stock setups to get us back into the markets.
Though the McClellan is overbought at a very high reading of 187, it shows the strength of the market by getting there in just two days. A rest is likely needed for a sustainable uptrend.
The Nasdaq exploded off of the ascending trendline near the lows and back up through it’s 21 and 50-day moving averages on well above-average volume. There is a resistance area a bit higher, but the key will be how it acts on a retest of the moving averages. Look for these to act as support and for the 50-day in yellow to turn up.
The S&P-500 followed suit, trailing the oversold Nasdaq in percentage gained last week (5.7% vs. 8.1% respectively), but is still leading in overall position. It’s coming up on the declining 200-day moving average, which should act as fairly stout resistance given how far this index has climbed in a short time to get there.
Extreme Networks (EXTR) broke out to all-time highs with volume on Friday, but fell back down within the base to hit stops. Many leaders exhibited similar action while the weaker stocks closed strong - to be expected during a bear-market bounce, but still difficult to execute on. Watching this one for another powerful move through $18.50.
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!
Constellation Energy (CEG) undercut the previous base breakout during the weak market action and recovered with the market bounce. It’s now back within the consolidation zone just below all-time highs. I’d look to buy a move up through $96.30 with volume and stops at $93.
PBF Energy (PBF) has formed an ascending base pattern with three tight closes on the weekly chart. Oil and gas might be taking a bit of a break as a sector, but I’m not seeing many sellers here. The buy point is a breakout at $49 on high volume with stops a few dollars lower.
Super Micro Computer (SMCI) is still holding the gap-up area after very strong earnings results. It moved up through the first inside-day buy point at $81 that I noted on Twitter last week. Now I’d consider trying a buy on a move to all-time highs at $86, or on a test and hold of $81.
Impinj (PI) gapped up on the highest daily volume since 2019 after reporting a stellar earnings report that surprised the street with 950% EPS growth. It undercut the gap area but recovered with the market bounce. A high volume move through $118 is the buy point.
Global Foundries (GFS) is another semiconductor stock that IPOed last year and has been holding its own during the bear market. It’s not the cleanest pattern, but the volume characteristics are great, so I’d consider buying a move through last week’s high of $66. Ideally it tightens up for a few more days before breaking out. Weekly chart below.
On Semiconductor (ON) has been consolidating during the market weakness and flashed a new high in relative strength before price on Friday. It’s moved straight up from the bottom, so it would be preferrable to see some consolidation before moving to all-time highs through $76.
Celsius Holdings (CELH) has formed a 52-week cup-with-handle pattern. Look how the volume has dried up in the handle area; that’s exactly what we want to see. It’s slightly more volatile than I’d like, but the general market action might explain that. The buy point is a breakout at $110, or $118 at all-time highs. One could try to start a position on a move through $100 for a better cost basis.
First Solar (FSLR) hasn’t yet followed through after the recent breakout at $140, and sold off on Friday while the market was up, but the everything is still normal as far as the volume is concerned. I’m watching this one for a high-volume breakout at $160. It might need a few days/weeks before then.
Enphase Energy (ENPH) is the other solar stock I’m watching closely. It’s in a worse technical position that FSLR and has been trading in a wider range, which isn’t positive. Still, it’s just below all-time highs. I’m watching for a big move above $320.
That’s all for tonight! See you back here on Wednesday night for an update on our stocks.