Markets sold off from an overbought position on high volume with the S&P getting rejected at the key descending trendline that I mentioned on Monday night. After seven straight up-days on the Nasdaq, a pullback was expected, though the severity was a bit higher than I had hoped to see. The S&P marked a distribution day on the highest daily volume this year and closed at lows.
On a positive note, the major averages are still above their key moving averages, and as long as that remains the case, this pullback is healthy in my opinion. A few days of consolidation without further destruction in the indexes and individual stocks would be ideal, especially earnings season kicking into high gear next week. That could serve as a catalyst in aggregate. More on this in Sunday’s letter. Many leading stocks continued to show relative strength, but most will need a few days to work off the recent action and consolidate for proper buy points.
Semiconductors did very well today, relatively speaking, and many stocks from Monday night’s issue are still acting constructively. I’ll update them below along with key levels moving forward. Let’s get into it!
Nothing has changed on our indicators as the Nasdaq remained above the rising short-term MAs for Day +7 in the cycle even after today’s distribution day. Net highs remained up.
The Nasdaq put in a bearish engulfing bar on above-average volume, marking a distribution day. It’s still above the rising moving averages and these need to hold as support in the coming days. If they do, it would be a great sign, and it could help set up short bases in leaders for the next leg up.
The S&P-500 was rejected perfectly at the descending trendline from the start of the bear market last year, selling off on high volume to close at lows. It’s still just above the moving averages. If it turned right around and broke out, bears would be in for a surprise. The best part is that we don’t need to predict what’s going to happen; just watch what does happen and react accordingly.
Rambus (RMBS) showed absolutely tremendous relative strength by breaking out on 2x average volume, closing at all-time highs. This was a top setup highlighted in the last issue, but I passed on it, as it gapped up and moved quickly while the market was lagging. This acts like a leader and I’ll be looking to buy on a pullback if the market holds up.
Deere & Co (DE) attempted a breakout on above-average volume yesterday, but it failed and came all the back down to close below the 50-day moving average, taking out $230 stops along the way. Volume was below-average, so I’m keeping this on the radar for another attempt in the coming weeks.
Gilead Sciences (GILD) is on that I noted “needs to bounce here, and if it does, there’s a very low risk spot to start a position”. It did not bounce much yesterday, and gapped down below the 50-day today. Still on the radar as sellers haven’t really come in with volume yet.
Extreme Networks (EXTR) found support at the bunched-up 21 and 50 MAs and moved through the early cheat pivot at $19.60, but it came back down and might’ve hit stops, depending on where you placed them. It’s still above the moving averages and volume was lower than yesterday. Earnings due next Wednesday.
The setups below are ideas, not outright buys; placing a trade depends on the price action, volume, and general market. 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) is still acting constructive, consolidating above the key moving average launch pad on light volume. I’d consider starting a position in this area if the market finds support, or a high-volume breakout at $26.
First Solar (FSLR) tested and held the $174 all-time high breakout point on low volume today, printing a new high in relative strength in the process. I’m impressed by the action in this one. If/when the market stabilizes, this seems like a stock to own. Watching for an entry.
MedPace Holdings (MEDP) flashed a new high in relative strength before today, and has great volume characteristics through the base. It has solid earnings and sales numbers and gapped up on the highest volume in a year after the last earnings report. Watching for a constructive pullback to the $218 area.
Amkor Technology (AMKR) is acting just fine here at all-time highs, pulling back on light volume. It can be considered on a test and hold of the $29 pivot point, though I’m not in a huge rush to add exposure just yet. Keeping high on the watch list.
Allegro Microsystems (ALGM) is another semiconductor that showed a new high in relative strength on the market down-day. Sell volume ticked up a bit, but it finished down only 1%. This one might need a few more days to set up a proper pivot.
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 Sunday night for an update on our stocks.
Thank you Dan for taking the time to share your insights. Please keep up the great work.