The Next Market Leaders - 1/25
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Markets recovered in the second half of the day after gapping down well over 1% on the back of poor guidance from Microsoft last night. TSLA reported an earnings beat after the bell and was up 5% after-hours.
We have seen further evidence that the indexes have bottomed, but keep in mind that there will be plenty of time to get positioned in the best names, so mitigate any FOMO and use the progress you’re making in your own account as your barometer for aggressiveness. I have yet to see much progress, but things are improving quickly, signaling that it’s time to start positioning for the first leg of a potential uptrend by buying leading stocks coming out of quality base patterns, while still limiting total account risk by maintaining stops and using progressive exposure. Easy enough, right?
On top of that, watch your list of top stocks rather than hyper-focusing on the index levels. Leading stocks have been acting very constructively and are expanding, though only a few high-quality issues have broken out and led higher on volume. Many others are setting up, so I’ll cover the near-term setups I’m watching for breakouts and others that are too extended but on the leader list. Let’s get into it!
Index Update
The Nasdaq is now Day +12 above the 21EMA with net highs continuing to prevail over lows. There aren’t an overwhelming amount of net highs at this point, but it remains green nonetheless. With this index above all short-term key moving averages, the only one that’s left is the declining 200-day MA.
The Nasdaq is now just below the declining 200-day MA after consolidating in the Stage 1 range since October. It tested the 10-day MA on the gap-down this morning and found resounding support, closing only slightly lower on high volume. That’s a great sign, and serves as evidence that the low may be in.
The S&P-500 is trading right around the descending trendline from the start of the bear market in 2022, and is now above ALL key moving averages, including the declining 200-day MA in white. Watch for the MAs to continue to hold as support, as they did this morning, and for a break of the daily higher-high area at 4,100 to confirm a new uptrend.
Stock Updates
Wabash National Corp (WNC) moved up through the $26 breakout point, but failed and came back in. It hasn’t done any further damage as it found support at the 21-day EMA, so I’d consider starting a position on a high-volume breakout at $26.30, but earnings are next Thursday.
MedPace Holdings (MEDP) tried to break out to all-time highs through $235, but it fell back in the base yesterday. Volume was above-average on the breakout but nothing to write home about at only 460k shares. Continuing to watch this one for heavier volume to come in on a move to highs.
Rambus (RMBS) closed 10% above the $39.40 pivot point from a few weeks ago and is clearly a leader in semiconductors. It’s still too extended to add at this point, but I’m watching this one for a pullback to the moving averages as long as high sell volume doesn’t come in.
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!
Allegro Microsystems (ALGM) is tightening up very nicely just below 52-week highs after testing the 21-day MA, on well below-average volume for the past two trading days. I’m watching for another attempt to break out through $34, but might start a position before then if buy volume is flowing into it.
Amkor Technology (AMKR) is yet another semiconductor that is looking to break out to all-time highs, closing above the 21-day EMA and prior breakout point. The declining volume throughout the base is exactly what I want to see, but now heavy buy volume needs to come in through the $30 pivot. Earnings 2/13.
Mobileye Global (MBLY) is a recent IPO that’s finding traction, with the 25M shares traded on the IPO day signaling interest in the stock. It’s now consolidating above the IPO price and reports earnings tomorrow morning. I’m watching for a positive earnings report and gap on heavy volume up to all-time highs at $37.
Madrigal Pharmaceuticals (MDGL) is trading in a tighter and tighter range after the massive, heavy-volume move kicked off by positive results of their clinical-stage drug. Today was a very low volume inside-day, so I’d use a breakout of today’s high with volume to start a position with stops just below $300. Smaller position size.
Caterpillar (CAT) successfully tested the previous breakout area last week. It looks like it wants to break out to new highs at $260, but volume needs to be heavy through the pivot point. On the weekly chart, this one has a 18-month base that can lead to a big move.
First Solar (FSLR) is one of the solar stocks I am watching, though the sector is acting a bit strange. ENPH breaking down is a concern. Still, this one looks OK for now, and once again found support at the 21-day moving average. I would consider a move back up through the $176 area with tight stops, but the volume would have to be very compelling.
Credo Technology (CRDO) broke out through the pivot point and has been following through with volume, so it can’t be ignored. I passed on it because I’m not a big fan of the volume characteristics in the weekly chart, but perhaps it was an exodus of the weak holders. It’s a 2022 IPO, with solid earnings estimates, printing a new high in RS on the weekly chart, so I’m keeping it on the radar to set up another buy point.
Aehr Test Systems (AEHR) has been a monster since the earnings gap a few weeks ago, and is refusing to stop it’s ascent to all-time highs. Though it’s a small name, it’s shouting from the rooftops about it’s leadership potential, so I am watching for a better base pattern to emerge to start a position.
That’s all for tonight! If you have any feedback or questions, just reply to this email or hit me up on Twitter.
See you back here on Sunday night for an update on our stocks.