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

The markets sold down aggressively last week in what were treacherous conditions for growth investors and traders. We are now in a confirmed downtrend with breakouts failing all over the place and former growth leaders getting decimated. DocuSign (DOCU) fell 41% on Friday alone after its earnings report indicated weaker-than-expected guidance even though it beat earnings and revenue expectations. Semiconductors, builders, and select retail stocks seem to be holding up the best.

This is not the time to be initiating new buys, but rather a time to be reducing risk by moving further into cash on any bounces if you haven’t already. I’ve been in cash since Thanksgiving, watching the carnage from the sidelines, knowing that it will lead to better setups down the line. Most stocks will likely need at least a few weeks to recover and form new bases. I will be waiting on the indices to form a bottom before making any new buys.

Today we’ll dive into the market index action, my recent moves, a few stocks holding up well that may lead when the market improves, and a quick lesson on my gap-up buying rule. Let’s dive into it!

Index Updates

The Nasdaq continued to sell down as I expected when last Tuesday I noted that it “looks headed for the 50-day MA in yellow”. After it fell below the 21-day MA in purple, I noted that it had then turned into resistance. You can see the green bar on Monday last week tested this resistance and was unable to close above it, on below-average volume no less. This made it clear that the index would likely continue selling down and it did so for the rest of the week, closing even below the 50-day MA.

It looks headed for the 200-day MA in white if it can’t rally back above the 50 soon, but I expect it to bounce higher first as it’s extremely oversold currently. Don’t fall for the bounce when it happens.

Similar action from the S&P as it put in its 7th distribution day (down-day on higher volume than the day before), which puts in firmly in correction territory. It closed just below the 50-day and if it can’t retake it on high volume then the index may head lower.

Recent Moves

• SQQQ - Bought this 3x short ETF of the QQQ at $6.52 on Wednesday when it looked like the market was heading lower and sold near end of day Friday at $6.87 for a quick 5% gain when most were getting rekt.

Current Positions

No current positions, I am 100% cash until conditions improve and more stocks set up constructive buy points.

If I do enter a new position, it will be with a smaller position (5% of portfolio or less) and a tight stop loss to manage risk.

Best Setups

Below are the best looking stock setups at the moment. I will be watching these closely as they may be leaders when the market turns upward, but I likely won’t be making new buys even if they pass the Buy Points until the market gets it’s footing… unless the move through the Buy Point is accompanied by massive volume. It’s generally best to wait and watch for now.

SQQQ - this 3x Nasdaq-100 short ETF is setting up a Buy Point of $7.20 if the market acts weak. The market is very oversold and will likely bounce in the next few days so if this sells down to $6.30-$6.50, I might pick some up with a stop 20 cents lower.

Old Dominion Freight Line (ODFL) is showing great relative strength by staying in this tight range and closing slightly higher on the weekly candle. The Buy Point is $365.50 on excellent volume with stops $10 lower.

Applovin (APP) needs to retake the 21-day moving average but it’s one to watch because of Friday’s fantastic buying volume of 29M shares vs. a daily average of 2M. Something is going on there so we’ll keep an eye on it to develop a buy point.

Rambus (RMBS) is a semiconductor designer that I bought a few weeks ago at the $25.25 Buy Point, but sold at $27 due to the market conditions. It’s hold up really well so the next Buy Point is a break through $28 on good volume if the market improves.

Arqit Quantum (ARQQ) is a newly-public security software stock that’s forming a beauty of a cup-with-handle base. I’d like to see it consolidate a bit lower to form a proper handle (around the descending orange line) before breaking out of the buy point at $41.60. Place stops $2 below your buy.

AMC Entertainment (AMC) formed a 6-month symmetrical triangle that provided a perfect short opportunity at the break of $36, though some might say shorting AMC is sacrilegious. I missed this one but it quickly fell over 25%. It’s a bit too late to get in now but if this can’t rally above the 200-day MA in white, it should head lower.

Trading Tip of the Day

Don’t buy stocks up over 10% on the day at resistance areas. It may look tempting if it passes a buy point area, but if it’s already up big on the day, it’ll likely get rejected.

Last week AMBA was featured in Tuesday’s report after releasing stellar earnings It was trading up 13% in after-hours and I noted that “A few days of rest would be best before breaking to all-time highs as I don’t buy stocks that are up over 10% on the day at resistance.” Here’s a look at why:

The stock had a big gap-up on Wednesday, moving through the Buy Point of $208 and trading all the way up to $226. It then sold aggressively back down to close below the Buy Point and continued lower with the market. We’ll keep an eye on this setup but that was not the time to buy because it was already too extended when it reached the resistance area.

That’s all for tonight! Good luck this week and remember to respect risk. See you back here on Tuesday night.

Cheers,

Danny Deals