Markets showed how much can change in a week as Monday’s weakness turned into a full-fledged selloff in the indexes by Friday. The VIX spiked to the highest intraday level since October on the rapidly unraveling Silicon Valley Bank failure news and inherent uncertainty involved with that. Contagion fears should continue to dominate market behavior early this week as more of this story unfolds. CPI is reported on Tuesday morning.

Last week, I had hoped that I’d be able to build upon light market exposure for the next leg up given the amount of quality stocks setting up. Instead, setups failed to show any upside follow-through and current positions stopped out for mostly small profits. I’m back to cash for now after a period of tough sledding.

Now it’s time to wait and see what happens from a nice view on the sidelines, unless trading on high volatility is your game. It’s not mine. With the Nasdaq back below all key moving averages, most stocks needing more time to work off the recent distribution, and with potential bombshell news dropping at any moment around the bank failure, there’s no need to be a hero this week. I'll wait for lower-risk, higher-conviction days. With that in mind, I’ll cover updates on the indexes, setups that failed or stopped out last week, and a few shorts I’m considering this week while waiting for the next market leaders to set up again. Let’s get into it!

Index Update

The Nasdaq has oscillated above and below the 21EMA but closed decidedly below it on high volume Friday for Day -2 in the cycle. It also closed below the 200 and 50-day moving averages. Net lows accelerated to the downside, marking the most new lows in stocks since 10/13 of last year. Very high caution is needed here.

After failing right at the descending trendline resistance on Monday, the Nasdaq sliced below support at the converging 200 and 50-day moving averages on above-average volume last week. Not a good sign. I’m watching for it to quickly regain these MAs. If not, there is potential support around 11,600.

The S&P-500 traded decidedly below the 200-day moving average and ascending trendline on very high volume Friday. It’s now below all key moving averages, dragged down by the higher weight of financial-related stocks that got hit last week. The moving averages above price may now act as resistance with 3,800 being the next level of potential support.

Earnings and Macro

• Monday: SIVB news

• Tuesday: CPI Data at 8:30am, LEN

• Wednesday: PPI and Retail Sales Data at 8:30am, ARRY, ADBE

• Thursday: Initial Jobless Claims at 8:30am, JBL, CBAY, ASO

Stock Updates

NVIDIA (NVDA) fell back down through the $230 pivot point after trading up to $242, and still hasn’t hit stops around $223, but I sold for a small profit given the uncertainty. This one is still holding up better than most.

Allegro MicroSystems (ALGM) came back down through the $45 spot after trading 6% higher. I closed it out even though it’s still holding the 21EMA. Looking for it to continue to hold and set up again to add it back.

Lattice Semiconductor (LSCC) got rejected at all-time highs on Thursday, a good place to close out the two inside-day buys last week for 7-8% profit. Watching for it to set up again as long as it holds the 21EMA.

Crocs (CROX) tested up through the descending trendline at $126.50, but quickly failed where it should have been closed right away. From failed moved come fast moves, and now it’s looking vulnerable below the 50MA.

Axcelis Technologies (ACLS) never had buy volume come in above $130.50, and now it’s looking shaky with the higher-volume down days. Avoiding for now.

MercadoLibre (MELI) broke down through the 21EMA after trading above the short base. This one needs more time to set up again.

STMicroelectronics (STM) tried to breakout through the bull flag within the context of the handle of a cup-with-handle pattern on the weekly chart, but failed to find the thrust given the market context. Continuing to watch this one to set up again.

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!

Long setups will need more time to work out the recent distribution in indexes and stocks. It might be a few weeks before proper setups emerge, so continue to watch closely! In the meantime, there are a few short setups I’m watching if markets can’t rally back.

Toast (TOST) broke down on above-average sell volume through an 8-month bear flag on the weekly chart, courtesy of a big negative earnings surprise in February. It closed below the 200-day MA as well. I’d consider a short on a test and failure of the $18 area.

Unity Software (U) also broke down through a shorter bear-flag and is below all key moving averages. I’d consider shorting on a test of the trendline around $29.

That’s all for tonight! Reply to this email or hit me up on Twitter if you have any feedback or questions.

See you back here on Wednesday night for an update on our stocks.

Cheers,

Dan Dormody

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