Markets completely retraced last Wednesday’s rally, whipsawing most stocks in the process and stopping out traders. Internals have worsened, and the current action isn’t conducive to trading with size or making account progress. While it can be frustrating, it’s crucial to stay in the game and keep watching for a change in behavior. Patience will pay!

Off the feedback of my recent results, I have been taking fewer trades, protecting my cost-basis by moving up stops faster than normal, and executing with progressive exposure. I am back to 100% cash. When I look to get back in, I will do so with small (5%) position sizes, and only increase exposure after getting some profit traction. This ensures that I trade the smallest when things aren’t working, and size up for a big account impact when things are working. If you size up when things aren’t working, the results can be disastrous. When it’s time to press the gas on offense, it will be clear in your recent trading results or observations.

The market seems to be holding it’s breath for the next economic catalysts (PPI on Friday morning, CPI Tuesday morning, and Fed Day on Wednesday). Be careful going into these volatility events and watch the reactions closely.

Tonight I’ll cover updates on all of the stocks from Sunday and those that are continuing to act constructively, particularly semiconductors. Let’s get into it!

Index Update

Market internals have deteriorated quickly as the S&P-500 is back below the short term moving averages and 21EMA with net highs/lows negative for three days straight. This signals strong caution regarding long positions in the short term.

The Nasdaq failed at resistance and now is sitting at a key area, the rising 50-day moving average in yellow, that it needs to hold for this rally to continue. Watch for this level to act as support to close out the week.

The S&P-500 broke back down through the 200-day moving average, a major long-term trend line, and now is back at a potential area of support after trading lower on low-volume. A move above Thursday’s high and the resistance area just above it would be a great sign for a trend change. Until then, this choppy, illiquid action doesn’t provide much opportunity, so we’ll need to wait and watch for volume to come back in on catalysts.

Stock Updates

Enphase Energy (ENPH) broke out to new highs on Friday on 145% average volume, and after holding up quite well on Monday, got hit yesterday on volume and fell back into the base. Though I noted on Sunday to add on a pullback to the pivot, that changed when the market fell apart to start the week, and with FSLR failing, I closed the trade to break even.

First Solar (FSLR) stayed in its base pattern while ENPH broke out, and sold off while ENPH was still above the pivot. This is the leader in solar and I noted that it had to break out shortly or ENPH would fail. Keeping this on the watch list as it looks to test the 50-day MA.

Sanmina Corp (SANM) traded up through the $67 resistance area on good volume, but fell down to $65 stops with the market weakness.

Rambus (RMBS) moved up past the $38 buy point on a volume pocket pivot, but quickly failed when it tested the $39 and grinded lower with the market to hit stops. Still, it looks constructive here, and passed the test of the 21EMA today. The pivot remains $39 on high volume if the market improves.

Celsius Holdings (CELH) is still acting just too choppy for a proper buy point despite showing relative strength. I’m keeping it on the watch list in case it tightens up, because the fundamentals are fantastic, but for now I’m on the sidelines with this one.

AEHR Test Systems (AEHR) again wicked up through the $27 buy point on Monday, but with the market and many other stocks getting hit, and it failed in short order. Avoiding it for now.

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!

Axcelis Technologies (ACLS) is a semiconductor showing relative strength and a tight pattern, though the average volume is low and there are some flaws in the base (mainly the depth). Still, watch for a high-volume move through $81 on the daily chart and above $84 on the weekly chart.

KLA Corporation (KLAC) is a semiconductor stock with accelerating earnings and sales, and it continues to respect it’s 10-day MA even with the market weakness. It has a fairly clear pivot point at the psychological $400 level, which, keep in mind, is still 15% away from all-time highs. This could work as a quick trade or early buy to establish a position.

After a 75% move off the bottom, Amkor Technology (AMKR) is printing a bull-flag into the short-term moving averages, and held the 21EMA as support today. I’d consider a breakout above $28-28.50 with heavy volume and an improving story in the indexes.

Elf Beauty (ELF) has been a leader for the past 5 months or so and is setting up a short consolidation after the power earnings gap on 11/3. The way this is holding in a tight consolidation despite market volatility is impressive. It printed an inside-day today. I’m watching for a high volume move through $56 with stops at $54.5. It might need a bit more time.

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 Sunday night for an update on our stocks.

Cheers,

Dan Dormody

The Next Market Leaders

The Next Market Leaders - 12/7