The Next Market Leaders - 1/8
Markets rallied over 2% Friday with above-average on volume, marking the start of a rally attempt in the indexes with macroeconomic news potentially improving over the next few weeks and months. To that end, Fed President Powell speaks on Tuesday morning, CPI and jobless claims are due out Thursday morning, and many big banks kick off earnings season on Friday. Expect these events to shake things up in both directions, so watch the reactions closely and be ready to manage risk.
Keep in mind that this is just the start of a potential rally and there’s no need to rapidly increase exposure at this point. There are still not many stocks in buyable position, and if this rally has legs, that will have to change. I have started a pilot position in ELF that I’ll be looking in increase as it starts working, and recently reviewed setups including CPRX and CAT are bright spots as well. Most others need more time to prove themselves and set up low-risk buy points. Stay patient.
Tonight I’ll review index updates, stock updates, and a few new setups I’m watching to develop. Let’s get into it!
The Nasdaq is still below the 21EMA with the 10-day MA falling, which marks Day -15 in the cycle. It is notable that the S&P-500 started a new cycle on Friday at Day +1, and now the lagging Nasdaq is looking to catch up. Net highs/lows pointed slightly up again on Friday, and this indicator will turn green after three straight days of net highs. It’s still very early.
The Nasdaq found support at the rising trendline and is now testing the upper resistance area after a big gain on Friday with high volume. Let’s see if it can push up and out through the 21EMA resistance. It had plenty of opportunity to push lower and did not; that’s a good sign for a rally from the low area where it has received support over the past few months.
The S&P-500 closed above the 21EMA in blue and just below the 50MA in yellow on a powerful move. This bearish setup moving instead to the upside tells me that the market might not want to break down and a rally may be on.
Watch for a retest of the 21EMA + trendline; a hold in that area would be a great sign and a good place to add stock if you’re looking to increase exposure. In any case, I want to see price quickly above the 50MA.
Elf Beauty (ELF) broke out through the clear pivot point at $57 on 2x average daily volume. This stock has most of the technical characteristics I look for in addition to earnings: a power earnings gap on high volume, relative strength, tightness in price on declining volume, and a breakout on increased volume. I bought a pilot position on the breakout and will add on a test of $57 with stops at $55.50.
Catalyst Pharmaceuticals (CPRX) broke out through the descending trendline, though it wasn’t easy to catch with the gap-up. The middling close and divergence in relative strength is slightly concerning. I have no position, but I’m keeping it on the radar.
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) closed at all-time highs after breaking out from the flat base pattern on above-average volume. It has accelerating earnings and sales, and the relative strength is clear. I’m looking to start a position on a test and hold of $245 with tight stops at $240.
Aehr Test Systems (AEHR) looked horrible before Thursday’s big earnings beat led the stock to gap up and close 32% higher on the highest volume in a year. It wasn’t the strongest close, getting rejected at the 50-day MA, but I’m keeping this on my focus list to see if it sets up over the next few days/weeks.
NovoCure (NVCR) gapped up on huge volume after reporting positive results from its lung cancer treatment tests. It parred some of those gains with an inside-day on Friday. This is a shorter-term, more speculative idea, but I’m watching for a move through $116, or for it to tighten up further in the coming days for a lower-risk trade.
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 Wednesday night for an update on our stocks.