The Next Market Leaders - 12/19

Hey everyone, and welcome to the new subscribers since the last issue!

The market has been choppier than ever over the past few weeks in what looks like the last stage of this bull market. Past leaders are breaking down, new breakouts are failing, and some short positions are working, but the name of the game right now is to either stay in cash or be extremely quick to take both profits and losses. In this market, it’s the quick and the dead.

I’m planning on mostly staying in cash this week until the market averages provide us with a clue about where we’re heading next. That being said, I’ll buy a test position (3% portfolio) or two if anything sets up perfectly.

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Index Updates

The Nasdaq fell about 3% last week. On Wednesday it put in a follow-through-day up 3% from the prior day on volume, which got a lot of traders back into stocks (myself included), but it sharply reversed course on Thursday with a strong bearish engulfing bar.

It’s now decidedly below the 50-day moving average in yellow and broke through below the ascending trendline in orange on volume, but closed above it. Futures are down about 1% tonight so this index looks like it will continue down to test the intraday low from 12/3. Look for it to hold this area, otherwise it could be headed to the 200-day MA in gray.

The S&P-500 traded close to all-time highs on Thursday morning but quickly got rejected and sold lower. In hindsight, this would’ve been a great spot to open a short position in SPY with a stop loss just above all-time highs. It looks like it will break the 50-day MA support in yellow and continue down to test the month-low at 4,495 at the lower orange line. If it breaks this area we could see much lower prices.

Recent Moves

• Sold half UNH to lock in 5% profit

• Bought and sold CUBI for a small gain

• Sold ANET break even as it failed its breakout

• Sold AZO break even as it failed its breakout

• Sold QCOM -2% as it failed its breakout

• Sold AVGO -2% as it failed its breakout

Notice a pattern here?

Current Positions

UnitedHealth Group (UNH) continued to show relative strength last week but got hit by some selling volume on Friday. I took off half of my position from $469 at $493 to lock in some profits for 5%.

Stop loss on the other half is in profit at $479.

Best Setups

The stocks listed here are the at the top of my watchlist, for watching only at this point, until we get a clearer signal about market direction. The risk/reward ratio is not attractive to initiate new positions.

This newsletter will generally consist of long positions, but I have listed a few short setups as well if the market is moving lower.

Endeavor Group (EDR) is forming a cup IPO base, and Cathie Wood bought shares last week for her ARKW ETF. It trades a bit choppy so a move above all-time highs at $33.30 would be best for a buy point with stops $2 lower. Weekly chart:

Ciena (CIEN) this telecom company popped after its earnings report two weeks ago showed good EPS and revenue growth (42% and 26% respectively). More importantly, it held those gains on above-average volume up days and lower-volume down days. Look for a break above $75.50 on heavy volume.

Bridge Investment Group (BRDG) is an REIT with stellar relative earnings and revenue, but it’s a bit lighter on volume, averaging just 120k shares per day. It broke out of its 4-week range on Friday with heavy volume. I’d look to pick some up right around here at $22.50 if the market is holding up, but wouldn’t be surprised to see it fall back into the base and consolidate further.

Nucor (NUE) is a steel producer that looks almost ready to break through the descending trendline. The buy point is a move through $122 on high volume.

Arcbest (ARCB) needs some more sideways work before moving through the buy point at $117, but keeping this one on my watch list as it’s holding up well amid this market decline and is defending it’s 50-day MA on volume.

Alcoa Corporation (AA) is a cyclical metal-miner that’s coming out of its 3-month base range on volume. A quick trader could pick some up here or a bit closer to $53 and add more on a break of $57.75 (or sell if it fails to break this higher resistance).

ZScaler (ZS) setting up for a short position as it rose Friday on high volume due to options expiry but didn’t break the descending trendline. I’d consider short-selling some if the market is selling down, if I can get an entry between $303-305 with a tight buy stop at $308.

News Corporation (NWS) looks ready for lower prices with the 200-day MA turning down and loooots of distribution on the daily chart. Here’s the weekly chart for a better perspective. I’d consider short-selling with a break of the $21 support on high volume.

Other Stocks

Here’s an update on some of the stocks we covered in last week’s newsletter.

Nvidia (NVDA) failed to break past my buy point and instead got rejected like Mutombo at the 21-day MA. It closed at the low of day on Friday just above the 50-day MA and looks poised to break this support. This is a leader in semiconductors and the overall market so it would be a bad omen if this sells off.

Customers Bancorp (CUBI) had a beauty of a breakout but then got absolutely spanked on Friday. Busted chart for now.

That’s all for tonight! If you liked this column or have any feedback about the content, hit me up on Twitter with the link below or respond to this email.

See you back here on Wednesday night.

Cheers,

Danny Deals