The Next Market Leaders - 12/11
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Markets remain illiquid, choppy, and news-driven; a treacherous combination of characteristics for swing traders. Things are unlikely to change much this week given the slew of important events on the economic calendar, including CPI data on Tuesday, FOMC on Wednesday, and retail sales + jobless claims on Thursday. Expectations are 7.3% for CPI and a 0.50% rate increase at FOMC with terminal rate guidance no higher than 5%. Any variations to these expectations in the actual data could cause large swings in the market. Expect high volatility in both directions.
There are likely to be plenty of false moves and shakeouts this week, as has been the case for the past several weeks, and it won’t be prudent to hold overnight risk without a large cushion. If day-trading doesn’t suit your trading style, it’s best to remain in cash until further evidence shows breakouts working with volume.
I’ll cover updates on the stocks showing the best relative strength, mainly in Semiconductors, which is setting up as a potential leadership group with quite a few stocks looking good. Still, buying breakouts this week is very much dependent on timing, volume, and economic news reactions in the indexes. Let’s get into it!
Index Update
Market internals remain negative for the most part, back below the short term moving averages and 21EMA with net highs/lows negative for 5 days straight. This signals strong caution regarding long positions in the short term.
The Nasdaq was unable to rally back above it’s 21EMA and closed the week down 4% after getting rejected at resistance. The silver lining is that it’s still above the rising 50-day moving average. Watch for this level to continue to act as support in the coming days. Zoom out on this chart and you’ll see how far away it is from highs - there’s no rush to get in here!
The S&P-500 was decidedly rejected at the 200-day MA and lost it’s 21EMA as well. The 50-day MA is a bit lower and can act as support, though the next short to mid term trend in this index should be largely determined by the economic data released this week. Watch the reaction closely to see if the key moving averages can be regained.
Stock Updates
Axcelis Technologies (ACLS) moved up through $81 on the daily chart, but was tough to buy given the shady action in the indexes and other breakouts getting sold into across the board. It held up well, evidenced by a new high in RS, and now is coming up to all-time highs above $84. Watch for high volume to push it through this area.
Enphase Energy (ENPH) failed the original pivot but is now consolidating just below the $325 buy point on decreased volume. This is a positive sign, but it will be very hard to buy again at $325 if it breaks out this week, especially with the less positive action in FSLR.
First Solar (FSLR) fell down through it’s 10 and 21 day moving averages and is coming up on it’s 50MA as support. It’s good to see that sell volume remains below average, and a test-and-hold of the 50-day could be a low-risk spot to start a position.
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!
Rambus (RMBS) looks very constructive as a leader in the semiconductor group and is trading in a very tight range relative to most other stocks in the market (including semiconductors). The pivot is $39 on high volume if the market improves.
Allegro MicroSystems (ALGM) is yet another semiconductor designer that’s showing new highs in relative strength and great volume characteristics. It gapped up on the highest volume in a year on news of being included in the S&P Mid Cap index, and is holding those gains. $33 is the high-volume close area and Friday’s high, which could be used as a short-term pivot, though we might have to wait for a better base.
Amkor Technology (AMKR) is printing a bull-flag into the short-term moving averages, but closed below the 21EMA last week. Look for it to quickly regain this level. I’d consider a breakout above $28-28.50 with heavy volume.
KLA Corporation (KLAC) continues to respect it’s 10-day MA even with the market weakness and now has printed 5 days straight of relative strength new highs. It has a fairly clear pivot point at the psychological $400 level, which is still 15% away from all-time highs.
Elf Beauty (ELF) is still holding in a tight consolidation despite market volatility, and the volume in the base is declining. I’m watching for a high volume move through $56 with stops at $54.50.
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.