The Next Market Leaders - 11/9
Markets sold off across the board and closed much lower today amid the uncertainty of midterm election results, a clear sign of participants taking risk off heading into the CPI report tomorrow. Even oil and gas, the leading sector, got hit hard. There does seem to be pockets of capitulation occurring in individual stocks and sectors (and crypto), which is important to form a major market bottom. More could be coming. It happens when things look the worst, and they don’t look great right now. Add in a hot CPI reading and all bets are off the table.
It’s good to be in cash! I noted on Sunday that I had sold remaining positions last week and wasn’t in a rush to initiate new ones given the choppy conditions. That remains the case with all eyes on CPI tomorrow. The average analyst expectation is 8%; any higher than that, and the market could be heading down to another leg lower. The reaction will be fascinating to watch from the sidelines. Unless there’s a strong upside move, the trend will remain down on all time frames.
There will be a multitude of setups to play coming out of this selloff as long as we remain vigilant, but for tonight, there are no new setups. It’s better to watch the volatility from the sidelines than to feel it in your account. There’s no rush to get in here. Hopefully, we’ll have a clear understanding of the market direction after this week is through and more setups to review on Sunday night.
If things change materially tomorrow, I’ll send out a note. Tonight, I’ll review the indexes and a few updates. Let’s get into it!
Our market indicators of the S&P-500 vs. its short term moving averages, 21-exponential moving average, and net highs+lows have painted a mixed picture over the past few weeks, highlighting the volatility and trend-lessness of the index.
The McClellan oscillator shows a neutral reading at 25, signaling that there is room to go before getting close to an oversold reading at -100.
The Nasdaq is very close to testing the ascending trendline after getting rejected at the 21EMA this week. A break below it would mean a lower-low, so bulls will want to see this area protected or the index could break down to year-to-date lows. The trend is clearly down on all time frames as all key moving averages are declining.
The S&P-500 remains slightly better off than the tech-heavy Nasdaq, as it was able to break through the 50 and 21 moving averages yesterday, but sliced back down below them today. That’s not a great look and it could be headed down to YTD lows if it can’t regain this area quickly on the CPI news tomorrow.
Extreme Networks (EXTR) has moved up 30% in two weeks from the prior pivot point and is still holding up well. It traded up to the all-time high at $18.50 before selling off, which is not surprising in this tape. Keeping this one on watch to tighten up before breaking out again.
Steel Dynamics (STLD) tried to break out through the resistance area at $97 for two days straight, but the weak volume wasn’t enough to push it through and it got rejected. It should’ve been avoided as I noted to look for high volume.
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!
There are no setups headed into CPI tomorrow.
That’s all for tonight! See you back here on Sunday night.