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The Next Market Leaders - 1/16
Markets are quickly improving and changing character after a 12-month bear market, signaling that we could be very close to the trend change that we have been waiting for. The S&P-500 is trading back above it’s (declining) 200-day moving average, a level that coincides with the descending trendline from the start of the bear market. The increasing health underneath the market in terms of net highs and other breadth indicators suggest that this level will hold and continue to the upside.
The increasing number of stock setups and expanding leadership suggests that as well. Several stocks have tightened up in bases and are ready to break out, while others are extended after fast moves higher and can be considered on pullbacks. We haven’t seen many stocks running away on huge volume breakouts yet, but the evidence is there that it’s time to be building and increasing long exposure if you haven’t yet.
From a contrarian standpoint, it seems like many seem to think that a recession is coming and that will bring new market lows. That’s a great signal for bulls because that’s what creates demand at higher levels.
I’ve listed tons of new setups below in the potential next market leaders. Let’s get into it!
All of our indicators are now green as the Nasdaq enters tomorrow Day +5 above the rising 21-day-exponential EMA. This is around the time where I would expect a bit of consolidation after the straight-up move, but the market could stay overbought. Net highs/lows are increasingly positive. This gives us clearance to get invested in stocks breaking out of valid bases.
The Nasdaq is showing a big cluster of volume coming into it off the bottom, an excellent sign and potential change in character as it’s showing relative strength against the S&P. It’s now trading above all moving averages except for the declining 200-day. I’m watching for it to continue to hold the 50 and 21 MAs as support.
The S&P-500 is sitting at a key inflection point, with the declining 200-day moving average converging with the descending trendline from the start of the bear market. A little consolidation here before breaking out would be healthy. A move and hold above these levels, as well as the key 4,100 level signaling a higher-high, would signal the start of a new bull market as far as I’m concerned.
No updates tonight!
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!
Wabash National Corp (WNC) peaked above the $26 breakout area but quickly fell back in the base. This strengthens the pattern, as it’s now consolidating in a tight area above the key moving average launch pad and below the breakout area. I’d consider a light volume pullback to the MAs or a high-volume breakout at $26 with stops just below $25.
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 $290.
Gilead Sciences (GLD) is a huge player in biotechnology that’s finding support at the 50-day MA on low volume after gapping up on the highest volume in a year with the last earnings report. It needs to bounce here, and if it does, there’s a very low risk spot to start a position on Friday’s inside-day high with stops below the 50MA.
Deere & Co (DE) is in a strong group and had 81% EPS growth last quarter. It’s working on a handle within a broader cup-with-handle on the weekly and looks ready to follow CAT to new high ground. A breakout at $442 has a great area to manage risk with 3% stops at $230.
Extreme Networks (EXTR) moved up 44% from the double-bottom breakout in October and is now finding support at the bunched-up 21 and 50 MAs. I’m watching for a move through $19.60 to start a position with stops at $19 before breaking out at $21, but it reports earnings next week, so there might not be time to establish a cushion.
Allegro Microsystems (ALG) is a relatively new issue in semiconductors that is just 11% away from all-time highs, and printed an inside-day on Friday. I’d prefer to see another test of the moving averages before proceeding higher, but I’d consider a high-volume breakout at $34.
Rambus (RMBS) is another semiconductor stock that has been on my radar for a few months, and after bouncing off of the moving averages and putting in new highs in relative strength, this one looks ready to break out to all-time highs. I’d look to buy a breakout through $39.60 with stops around $38.
Amkor Technology (AMKR) is one from our list a few weeks ago, but I took it off too early. It broke out of the bull flag after failing to break down below the 50MA and closed at all-time highs on Friday. Watching to see how it reacts on a pullback, but otherwise waiting for it to set up again.
Array Technologies (ARRY) failed to break down below the 50-day MA, instead reversing and moving back up towards 52-week highs. A little consolidation below the breakout point at $24 would be ideal before moving through on volume, as it’s bit extended here.
First Solar (FSLR) had a bearish look to it as it was moving below all key moving averages while ENPH was getting slaughtered, but sell volume never came in, and now it’s at all-time highs. Let’s see if it tests and holds the $174 breakout area in the coming days.
Axcelis Technologies (ACLS) is powering it’s way to all-time highs on several consecutive days of above-average volume. That’s a very positive sign for this potential leader. Watching for it to set up in the coming weeks, or pull back to the $90 area or the 21EMA, as it’s too extended to buy here.
That’s all for tonight! I love to hear from you all, so if you have any feedback or questions, just reply to this email or hit me up on Twitter.
See you back here on Wednesday night for an update on our stocks.