The Next Market Leaders - 1/22
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Markets powered higher Friday on stellar volume in a clear character change. There was a good opportunity for bears to push a move to new lows, but the opposite occurred and big support showed up around the key moving averages.
With net highs/lows continuing to be green, the number of stocks trading above their 200-day moving averages increasingly positive, and the S&P-500 net even for the past 6 months with it’s last low marked in October, it seems as though the worst of the bear market is behind us and we could be close to the first leg up in a new uptrend.
Individual stocks are supporting that thesis as well. We haven’t quite seen many up-and-away moves on institutional volume to this point, but more and more setups are beginning to materialize, and leaders are acting constructively. I’m still in pilot-position mode but won’t hesitate to quickly increase exposure as trades start showing profit. This week kicks earnings season into high-gear with tens of companies reporting every day, and that could serve as a catalyst for the markets in aggregate. Many stocks could kick off new uptrends on positive earnings results/reactions. Make sure you know when your stocks are reporting, and be vigilant after the bell for big earnings moves. Let’s get into it!
Index Update
All of our market indicators are green as the Nasdaq found support Friday at the rising 10 and 21-day moving averages and closed up Day +9 in the cycle. Breadth looks good and net highs/lows edged up again.
The Nasdaq gapped back up through the 50-day MA after finding support at the 21EMA, and continued up to close at daily highs for another follow-through day on super volume. The cluster of high volume on up-days over the past few weeks, and low volume and Wednesday/Thursday’s down days, signals a clear change of character this year and sign of a bottom. Next up is last week’s resistance and the declining 200-day MA.
The S&P-500 is showing a contraction in volatility, as it hasn’t declined in price on a net basis since last May. It’s now trading in a tight area around all of the key moving averages with the long-term descending trendline just overhead. Watching for the MAs to continue to hold as support and for an upside move through the trendline.
Earnings This Week
Many more companies report this week, but here are the key ones that I’m watching:
Tuesday
AGYS, HAL
Wednesday
EXTR, FLEX, HES, LVS, CLS, STLD, ASML, CALX, LRCX
Thursday
KLAC, MBLY, VLO
Stock Updates
Rambus (RMBS) continues to show relative strength as it closed at all-time highs on Friday. It’s still too extended to consider, but I’m watching this one for a pullback to the moving averages to establish a position as long as it continues to act like a leader.
Extreme Networks (EXTR) stopped out from the early cheat pivot at $19.60 and had a big shakeout below the moving averages on high volume. Closing green, this kind of shakeout can lead to an upside move because of investors who sold look to buy back and new shorts have to cover. Earnings are due out Wednesday, so I won’t be making a move before then.
First Solar (FSLR) failed the breakout pivot retest at $174, but found support at the 21-day moving average. I’m a bit wary of this name due to the damage that’s being dealt in its industry counterpart Enphase Energy (ENPH), but I would consider a high-volume breakout back up through $174.
Best Setups
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) pulled back on light volume to the key moving average launch pad and found support there. This one has excellent earnings growth to the tune of 232% EPS growth last quarter. I’d consider starting a position on a high-volume breakout at $26 before earnings next Thursday.
MedPace Holdings (MEDP) is still consolidating above the moving averages and just below the pivot point on low volume. It touched the 10-day moving average on Friday and closed even on the day. It has great volume characteristics through the base, but high volume needs to come in on a move through $235.
Madrigal Pharmaceuticals (MDGL) isn’t giving up any of the gains from the massive, heavy-volume move kicked off by positive results of their clinical-stage drug. I’d use a smaller position in this one, but a high-volume breakout at $308.50 is a buy with stops below the 10-day MA.
Amkor Technology (AMKR) closed right on the prior pivot breakout point and just above the 21-day EMA. Watching to see if volume comes into this one as it did with AEHR on Friday for “tennis ball” action on a retest of the pivot. Stops could be placed around $28.50.
Allegro Microsystems (ALGM) held on a test of the 21-day MA, but sell volume ticked up above-average for those two red days. I’m watching for another attempt to break out through $34.
Aehr Test Systems (AEHR) is a leader in Semiconductor Equipment and growth in general, ever since it’s power earnings gap on 1/6. This is the kind of move we are looking for in other stocks over the next few weeks. The quick trader might have added on a test of the 10-day moving average, off which it rocketed back up to close at all-time highs. I am watching for a better base pattern to emerge.
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.