Markets finished higher on the day and potentially put in a higher-low on the daily charts as they failed to break down to YTD lows so far. The charts for leading stocks are still relatively intact, though most need more time to set up properly. That’s a good thing; it gives us more time to evaluate the stability of the indexes going into the new year.

We are entering the holiday period with some of the lowest liquidity days of the year. It may be hard to catch a reliable signal until volume comes back in. For now, I’m open to establishing pilot positions in leaders breaking out so long as selling doesn’t accelerate in the indexes, but I’m in no rush to increase exposure, and I’ll be quick to cut if trades start moving against me.

Reminder that the market is closed on the next two Mondays, so those posts will be out sent out Monday night. For now, there are only a few top-tier setups that I’m watching for potential pilot positions. I’ll cover those below along with the indexes. Let’s get into it!

Index Update

I’ve updated the below market health indicators, simplifying it down to the 10-day moving average and the 21-day moving average rather than the 3 and 5-day moving averages. This will help clear up some of the false signals involved with the shorter-term moving averages and align better with my overall strategy. The Cycle column will count the days above or below the 21-day EMA so as to understand where we are at in the market rally or decline.

At the moment, all indicators are red, and we closed Day 5 below the 21EMA with net highs/lows down for 13 days straight. This signals strong caution on long positions.

The Nasdaq peaked below the ascending trendline but failed to break down, and potentially put in a higher-low in the general area where it’s been supported all year. This is a positive sign. Volume has decreased over the past three days, but that’s expected heading into the holidays over the next two weeks. The key moving averages are just overhead as resistance.

The S&P-500 closed just above it’s 50-day moving average on low volume. This chart looks more bearish than not, with a low-volume rally back into overhead resistance after breaking down, so stay on your toes if selling comes in over the next few days. In absence of that, look for this index to regain the key moving averages just above.

Stock Updates

No updates tonight!

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!

Caterpillar (CAT) has shown four days straight of new highs in relative strength after gapping up on a great earnings report a few weeks ago. It broke out of a flat base on high volume today at $240. I added a pilot position with half stops at $237 and half at $231. Would consider adding to the position as it starts working and follow-through volume comes in.

First Solar (FSLR) shook out today on a test of the 50-day MA, which held wonderfully and bounced up 8%. That doesn’t leave us with much of a technical stop level for buying the pivot at $162, but I would consider some tomorrow if volume comes in with stops at the low of the day. New highs at $174.

Super Micro Computer (SMCI) gapped up on a burst of volume on news that it will be included in the S&P Mid Cap index. It printed an inside-day today on the highest daily volume since 2018. The double-bottom buy point is a move through $93, though I would consider starting a position above the inside-day high at $85.30 if the indexes are acting well.

Nine Energy Services (NINE) had a high-tight flag pattern that I was this close to including in Sunday’s newsletter, but ultimately passed on it as it crossed up through the inside-day buy point at $10.25 and continued 22% higher. Missed it, so will watch for another buy point to form, perhaps on a test of the 10DMA or another inside-day.

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 Monday night for an update on our stocks.

Cheers,

Dan Dormody

The Next Market Leaders

The Next Market Leaders - 12/21