The Next Market Leaders - 11/20
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Markets consolidated for most of the week in a constructive fashion despite the daily gaps and general choppiness. We knew that some sideways movement would be needed to digest the explosive bounce after the CPI report 10 days ago. This consolidation could be setting us up for a more sustainable trend higher.
Still, all of my recent buys have triggered their stops in short order. Don’t worry if yours have as well; we’re still very early in this potential trend change and there will be plenty of opportunity to get involved if it’s for real. I’ll continue to use pilot positions (5%) to test out buying stocks and use those as a gauge for market health. If and when positions start to show profits, I’ll look to increase my market exposure fairly quickly for a broader move. The last thing I want to do after a series of losing trades is to increase position size, because that’s the market telling me that it’s not ready.
Solar is a leading sector and semiconductors are shaping up. We have a great list of potential leaders showing relative strength, and now the game is getting positioned in those names by patiently waiting for the right spots, provided the indexes are able to hold YTD lows. Let’s get into it!
Note: Markets are closed Thursday and half the day Friday, so the next issue will be next Sunday. More frequent updates and setups available on my Twitter page.
Index Update
The S&P is now between the short-term moving averages as the index has been relatively flat over the past 5 days. Net highs and lows are back to a down reading, but there were only 16 net lows on Friday.
The Nasdaq has been a bit choppy over the past few days, but it’s still above the declining 50-day MA and rising 21-day EMA. It would be positive to see it continue to hold this level and the 50MA start to turn higher. Keep in mind that the long-term trend remains down while it trades well below the declining 200-day MA in white.
The S&P-500 remains in a better technical position than the Nasdaq, with the 21EMA above the 50MA and and 50MA looking ready to turn positive. The declining 200-day MA is just above as stout resistance and the upper orange line around 4,300 is a potential target for a year-end rally if the 200MA resistance breaks.
Stock Updates
Extreme Networks (EXTR) continues to hold it’s 10-day moving average and moved up through the resistance area at $18.75 on Friday. The volume was not good enough for me to buy, but I’ll continue watching this one for another opportunity.
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!
First Solar (FSLR) is the definitive leader in solar and broke out above the short ascending base pattern, despite it coming on below-average volume. I avoided it for now, but I wouldn’t be surprised to see a back-test of the $160 pivot area, at which point I’d consider buying with stops at $155.
Enphase Energy (ENPH) is the other solar stock I’m watching closely, and it briefly inched past the $320 pivot on Friday before reversing on high volume. Not a great look for this one, but I’ve moved the buy point up to $323 on high volume with stops at $307.
Clearfield (CLFD) failed to break out from the cup pattern, then failed to break down, and now has gapped up on big volume. The double-bottom buy point is $126, though it might take some time to set up for that. If it turns down on light volume tomorrow, it could present a low-risk buy point around $110-112 with stops at $107.
Constellation Energy (CEG) regained its 21EMA and remains within the base-on-base just below all-time highs. I’d look to buy a move up through $96.30 with volume and stops at $93.
Impinj (PI) is trading within a nice flat box after gapping up on stellar earnings. Buyers have continued to defend the gap-up area around $104. A high volume move through $118 is the buy point.
Rambus (RMBS) is one of the best semiconductor charts out there after moving up more than 30% from the prior breakout. It hasn’t given up much of those gains so far, indicating that there aren’t many sellers in the stock. A potential first buy point is a move through $38, or more preferably, on a test and hold of the 10-day MA. It might be better to give this one more time to set up.
Global Foundries (GFS) stopped out on the first buy through $66, but recovered to close out the week near highs. Now it has support at $66 and a breakout point of $68 on high volume.
On Semiconductor (ON) peaked out at $76 but quickly sold off and hit stops. This one trades choppily, similar to ANET, but it’s setting up for another move through $76 nonetheless. This would be all-time highs for the stock so I’m looking for at least 140% average volume on the breakout day.
Super Micro Computer (SMCI) has fantastic earning growth and is a potential leading stock, but it’s not really forming much of a pattern here. It’s character is such that buying weakness is better than buying strength. I noted to consider it on a test and hold of $81, but now I’m looking for another test of the 10-day MA or 21EMA for another buy.
That’s all for tonight! See you back here on Sunday night for an update on our stocks. In the meantime, have a great turkey day!