Markets closed out the week slightly in the red with low volume across the board. The short and long term price trends on the indexes are decidedly down, and feedback on new commitments has been very poor for the past several weeks. For me, I take that as valuable feedback to trade less and trade smaller.

Entering the last week of the year with only 4 trading days, I’m not expecting much to change. The Nasdaq and S&P are set to close the year down roughly -33% and -20% as it stands, an arduous year for traders to say the least. Any positive performance on the year is commendable. The theme of the year has been to control and limit risk, not to maximize gains. In any case, this week represents a perfect time to look back and analyze your trades to observe what you could have done differently to optimize performance. Take those lessons into 2023!

Oil and gas stocks have performed particularly well in recent days. I’ve listed a few of the top setups coming into this week, but I am more likely to sit out and wait for higher-probability trading days rather than try to read through the weak-signaling low liquidity. Do so at your own risk. Let’s get into it!

Index Update

All of my market trend indicators are red as the trend remains down. We closed Day 7 below the 21EMA with net highs/lows down for 15 days straight. This signals strong caution on long positions.

The Nasdaq is getting a little too comfortable around year-to-date lows with the 21EMA in blue pointing down. The long-term trend of the 200-day moving average also remains down. There’s not much to do in this area but wait for a potential bottom to form.

The S&P-500 was rejected at the 200-day MA area a few weeks ago and cut through both the 21EMA and 50MA after that. It’s in better shape than the Nasdaq as energy and value continue to perform better than technology. Watch for it to regain the short-term MAs, and ultimately move above the upper resistance at 4,100 for a long-term change of trend.

Stock Updates

Caterpillar (CAT) fell back into the flat base to test and hold the 21-exponential moving average. It still looks positive with yet another new high in relative strength, but until the market environment improves, this one won’t be able to move in earnest. Avoiding for now as my pilot position stopped out.

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!

Halozyme Therapeutics (HALO), a biotech with accelerating sales and earnings, is tightening up after a 20% move, showing new highs in relative strength before price. Friday was an inside-day on below average volume. I’m watching for a big move through Friday’s high at $58.25 and a breakout to new highs at $59.50.

KLX Energy Services (KLXE) is a more speculative oil and gas stock, but volume has been declining through the base and it found support at the key moving averages to form a launch pad. It has shown the ability to make big moves after a 300% runup in October. A move through $16.75 would confirm the double-bottom pattern, but I’d prefer to see another test of the MAs first.

First Solar (FSLR) is still consolidating above the 50-day moving average. It’s acting perfectly normal given the weakness in the indexes. I’m still watching for a high-volume move through the $162 pivot point as well as new highs at $174.

Elf Beauty (ELF) is also acting orderly above the 21EMA and 50MA. Volume is declining, a positive sign that sellers are drying up. New highs are at $57, but volume will have to be heavy and the market improving.

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.

Cheers,

Dan Dormody

The Next Market Leaders

The Next Market Leaders - 12/26