The Next Market Leaders - 11/6
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Markets closed out a rough week on a positive note as they rallied on high volume, but they remain below all key declining moving averages. The trend is down on all time frames. The action in leading stocks is a bit mixed; some are holding up quite well and even gaining ground while others sold off after earnings reports. It feels like we’re at the point in the cycle where the action in leadings stocks is more important than that of the indexes, so keep your lists updated and watch them religiously, and in the event of divergence between leaders and indexes, expect leaders to prevail, barring any unforeseen macro news or particularly heavy selling pressure.
After moving to cash last Wednesday, I’m not in a big rush to initiate new positions. There’s not much out there in terms of low-risk entry points after the wild index moves. Things could change quickly if there’s a strong reversal, but only time will change the fact that proper setups are nascent. Stay patient and open to all scenarios.
Earnings gaps have been working well. Keep an eye out for stocks reporting excellent earnings reports and gapping up over the next few weeks. I’ve highlighted several new setups below that feature positive earnings reactions, as these are the kinds of stocks that can lead when the market pressure is lifted. Let’s get into it!
Index Update
Market internals deteriorated last week as our indicators went from all green to all red after the S&P-500 fell back below the short-term moving averages and 21EMA and net highs/lows fell back to a down reading.
Not what we want to see, but the 21EMA is in striking distance, so look for this level to flip.
The Nasdaq has been lagging as it remains below all declining key moving averages. That provides important context for growth and technology stocks. There’s a lot of overhead resistance in this area with the 21+50 moving averages congregating just above. It did close positive on high volume on Friday, so that’s a good start. Look for Friday’s low to hold.
The S&P-500 is looking quite a bit better, but it still closed just below the 21EMA on Friday. If it regains the 21EMA and 50MA, the rally will be back on with trapped bears from the failed breakdown. If not, it could be heading back down to support near the YTD lows.
Stock Updates
Super Micro Computer (SMCI) is holding the gap-up area after very strong earnings results. As long as it holds above $74, it’s positive. I’d consider trying a buy on a test and hold of $75-$76 for a low-risk trade with stops at $74.
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!
Constellation Energy (CEG) is holding up valiantly despite market pressure after breaking out a few weeks ago. It’s forming a strong base-on-base pattern just before reporting earnings on Tuesday. If earnings are strong, I’d look to buy a gap as close to $96 as possible.
Extreme Networks (EXTR) has moved up 30% in two weeks from the prior pivot point and looks to be setting up for more. I’d prefer a few more days of consolidation and tightening up before breaking out to all-time highs at $18.50 with volume.
Impinj (PI) is a semiconductor stock that gapped up on the highest daily volume since 2019 after reporting a stellar earnings report that surprised the street with 950% EPS growth. It’s holding the gap area well so far. I’d look to buy on weakness on a test and hold of $107 or on strength with a breakout t $117.
Steel Dynamics (STLD) is building out a bull flag on declining volume after moving up 25% in 5 days. The relative strength looks great. I’d look to buy a move through $97 on high volume with stops $3 lower.
That’s all for tonight! See you back here on Wednesday night for an update on our stocks.