Markets retraced to their 21-day exponential moving averages after hotter-than-expected inflation data hit the wires Thursday morning. The likelihood of further rate hikes, or a larger rate hike in March, has increased. More economic data is due out this week with FOMC meeting minutes on Wednesday, GDP + Initial Jobless Claims on Thursday, and PCE on Friday.

At this stage, I’m focusing much more on the action in leading stocks rather than the indexes. Leaders have been holding in very well. The index weakness has allowed for bases to start forming in quality stocks, with most pulling back in a constructive manner on light volume, and some, like ALGM and ELF, barely pulling back at all. I will continue to look to increase exposure in the leading names, but taking it slow, as I’ve noted several times in the past few weeks. Risk and volatility remain high.

Setups are not quite proliferating as most need more time to base and tighten up before breaking out from pivot points. I’ll cover the few actionable setups I’m watching below. Let’s get into it!

Index Update

The Nasdaq closed Day +29 above the 21EMA after using it as support on Friday. The 10-day MA has started to fall as this index consolidates but it remains above the 21. Net highs continue to persist over lows, and all else remains unchanged. The rally remains quite healthy by these objective measures.

The Nasdaq is flagging above all key moving averages. The 21-day EMA acted as support on Friday, and the 200-day MA is decreasing it’s downward slope. Another 1-2 weeks and the 200MA should begin to turn positive as long as price remains above it. Watch for support levels to continue to hold.

The S&P-500 just barely held it’s 21-day EMA on Friday. It’s trading above a confluence of support with the rising trendline, rising 50-day MA, and 200-day MA. Watch for Friday’s low to hold, and if not, for buying support to come in at the lower levels.

Stock Updates

Credo Technology (CRDO) gapped down nearly 50% on news after-hours that its largest customer was cutting back spend. There were no technical warning signs, outside of the initial weekly volume red flags that made me skeptical of the stock on the first breakout. Hopefully you weren’t positioned too large in this one. By pure chance, I didn’t have a position as I cut exposure before I went on vacation last week. If you did, there’s nothing to do but take the loss and move on as these things inevitably happen in trading over the course of a career.

Lattice Semiconductor (LSCC) broke out after an EPS beat and guidance raise pushed it to new highs above $85 on volume. It’s retracing a bit on the general market weakness. Watching for it to hold $85 before moving higher. I’d consider adding there with stops just below $83.

Aehr Test Systems (AEHR) found support at the last breakout point and VWAP from the last power earnings gap where I noted that it could be added for a low-risk trade. It’s now back above the 21EMA and basing on declining volume. A breakout through $37 on high volume would be an add.

Allegro MicroSystems (ALGM) is still one of the strongest growth stocks in the market, refusing to give up hardly any ground. I’m watching for a bit more of a rest to set up a breakout pivot point to add.

Arhaus (ARHS) is positive as long as it continues to hold the 21EMA. Stops just below that level. Sell volume ticked up last week, a slight concern, and the weekly chart doesn’t look great. Watching for a move through $15 on heavy volume to add, but it might need to rest a bit more first.

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!

NVIDIA (NVDA) is taking a break after a big move off the bottom, pulling back to the 21EMA on average volume. The company reports earnings on Wednesday - watching for a positive report and reaction through $230 to buy.

ZipRecruiter (ZIP) is a 2021 IPO that’s trading tightly above all key moving averages after moving back above them a few weeks ago. It reports earnings tomorrow. Watching the reaction for a move up through $24 on high volume with stops at $23.

Life Time Holdings (LTH) closed just below the 21-day EMA on well below-average volume. It’s entering week 3 of a potential handle area on the weekly chart and has stellar earnings/sales. A quick recovery of the 21EMA would set up for a breakout above $19.30. Earnings due out 3/8.

E.l.f. Beauty (ELF) has barely any sellers at highs, trading in a tight range above all rising moving averages despite the pullback in the indexes. Waiting for a better pivot point to form, though I would consider a heavy-volume breakout through $75 or a pullback to the 21EMA.

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.

Cheers,

Dan Dormody