Last week was productive until a triple whammy of bad news spooked the markets thoroughly, including higher than expected CPI data on Thursday, hawkish Fed comments about rate hikes Thursday afternoon, and reports of an impending Russia invasion. The Nasdaq closed over 2% lower on the week and now looks like it will test the lows from a few weeks ago.

I warned of the overbought conditions and that I was still holding a high percentage of cash on Wednesday. I hope you were too so that you escaped most of the carnage.

Oil prices jumped 3.5% on the Russia news and many energy stocks are either breaking out or ready to breakout, as I’ve mentioned many times over the past few issues. We’ll cover several such stocks tonight as well as a few others that look good to short. Let’s get into it!

Index Update

Most of the damage to the major indexes happens below the 21-day exponential moving average. I’ve started using a proxy to help determine my buying aggressiveness; the Nasdaq Composite in comparison to it’s 21-day EMA as well as the net highs and lows on the index.

If it’s above a rising 21EMA, it’s green (be long).

If it’s below a rising 21EMA or above a falling 21EMA, it’s yellow (caution).

If it’s below a falling 21EMA, it’s red (be cash or short).

The net highs/lows indicator counts the number of stocks in the Nasdaq moving higher and lower on the day. 3 days in a row of net higher stocks turns the indicator green, while 3 days in a row of net lower stocks turns it red. Otherwise, it’s neutral (yellow).

These two indicators are an excellent proxy to determine where the market is at and whether one should be playing offense or defense. I’ll be publishing it on Twitter every morning. Tomorrow’s reading signals strong caution for long positions:

The Nasdaq got crushed on Friday and closed below the recent established range. I noted on Wednesday that "it closed right at resistance so it might face some trouble tomorrow… I’d be careful opening up new positions here”. This turned out to be spot-on as it was rejected at resistance and moved much lower. It looks headed down to the lows.

The S&P-500 couldn’t hold above the descending trendline and also moved swiftly below the 200-day MA in white. It looks headed lower from here unless it can regain the 200-day quickly.

Portfolio Update

YTD Return: +5.40%

YTD S&P-500: -7.29%

Recent Moves

• DASH - Shorted at $100.50, covered, then re-shorted at $98 as it headed lower.

• NEX - Noted that I bought this last week and it rocketed higher on Thursday and Friday. I sold half for 7% and the rest is up 14% currently.

• COP - Bought some Friday afternoon at $92.50 as crude futures jumped.

My Positions

DoorDash (DASH) broke below my short-sell point on Friday and I took it at $98. It’s up 3% and my stops are at even just in case the market snaps back.

NexTier Oilfield Solutions (NEX) rocketed higher right after I bought it on Wednesday. I sold half for 7% and have stops at even on the rest.

ConocoPhillips (COP) is one I bought on Friday after it closed strong. I will add to the position on a break of the bull flag at $94.50 on high volume if crude is holding up tomorrow. Stops at $91 for now.

Best Setups

Let’s start with a quick review of some of my stocks from last week that stopped out to show how choppy the market is and how quick you have to be.

Skyline Champion (SKY) crossed above my $74 buy point and last week I noted to take some profits at +8% and to move stops up to even just in case. Hopefully you stopped out Friday.

ZIM Integrated Shipping (ZIM) broke through my latest buy point of $69.75 and was over 5% higher, but you likely stopped out even on Friday.

Bill.com (BILL) passed my $245 buy point and was over 6% higher before coming back below the entry on Friday.

Microstrategy (MSTR) passed my $420 and was 10% higher before coming all the way back below the entry.

Now let’s move on the best chart patterns in energy stocks, which is currently the only sector worth considering for longs as far as I’m concerned.

Transcanada Pipelines (TRP) broke above my $52 by point on high volume Friday and closed 1% higher. Keep stops $1.50 below your buy.

Hess Corp (HES) is showing a nice volatility contraction pattern and a new high in relative strength before price as noted by the blue line above the chart. The buy point is a move above $97 on volume with stops $2 lower.

PBF Energy (PBF) printed an inside day on Friday which might give a good entry. The buy point is a move about Friday’s high at $19.75 with stops $1 lower.

Earthstone Energy (ESTE) also printed an inside day on Friday in the context of a descending trendline, which can be a powerful indicator if it’s able to break above Friday’s high at $14 on heavy volume. Stops $0.50 lower.

Vaalco Energy (EGY) is a lower priced but strong energy stock as evidenced by the fantastic volume characteristics. The buy point is a move above Friday’s high of $5.90 on heavy volume with stops $0.25 lower.

APA Corp (APA) is yet another energy stock that looks ready for higher prices. Check out the tightening in price over the past few days. A break above Friday’s high at $34.50 is the buy point with stops $1 lower.

British American Tobacco (BTI) is one from a few weeks ago where my buy point was $43.30. I took the trade but sold it because volume was too slow to come in. Volume finally came in on Friday and closed up over 7% from my original buy point. Guess I should’ve held onto this one!

Short Setups

Now let’s cover a few stocks that look ready for lower prices if the market is moving lower.

Roblox (RBLX) crossed my $70 buy point on Thursday but sold off with the market on Friday. Now it looks like a good short if it breaks below $65 on high sell volume. Stops $2 higher.

Etsy (ETSY) has been beaten down over the past few weeks, but could go lower. It moved below the bear flag, but higher sell volume needs to come in. I’d consider it on a move below $140 if sell volume is heavy.

Doximity (DOCS) popped on great earnings last week, but if the market is moving lower, this could continue its downtrend and fill the gap back to $50 at least. The sell point is a move below $55.50 with stops $2 higher.

Rivian Automotive (RIVN) has sold off from two consecutive bear flags and now it might do it a third time. The sell-short point is a move below $58 on heavy sell volume.

That’s all for today! If you liked this column or have any feedback about the content, hit me up on Twitter with the link below or respond to this email.

See you back here on Wednesday night for an update on our stocks. Hope you enjoy the Super Bowl!

Cheers,

Danny Deals