The Next Market Leaders - 3/26
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Markets reversed on Thursday after the initial selloff reaction to the FOMC decision, and held key levels to close out the week. It looked like stocks might break out and follow through to the upside, but Thursday’s close highlighted the prevalent indecision. It has been a day trader’s market, featuring intraday volatility and choppiness, and one in which all traders have had to execute perfectly and move stops up quickly or get cut up on fast market reversals.
There’s a clear divergence of breadth and price in the indexes (also between indexes themselves like the Nasdaq vs. Russell 2000), and there are two ways to look it; one is that breadth is poor so the market will follow. This is more typical as the market eventually has to follow the majority of its components. The other way to view it is that price is still holding up, so breadth will improve as the market continues to rise. It’s a mixed picture and could resolve either way. The disciplined trader can either stay out until the picture clears up or continue to execute on low-risk setups with a short execution timeframe and be prepared to act quickly if red flags develop.
As always, individual stocks are the best barometer for market health and leaders have been holding up. There certainly aren’t a litany of stocks in buyable position, but there is a shortlist of leaders like ONON, ANET, DUOL, and SMCI that have charged into 52-week highs on solid earnings reports. A few others tightened up on Friday so I’ll cover those below. Let’s get into it!
Index Update
The Nasdaq closed Day +9 above the 21EMA and all other key moving averages, but net lows continue to accelerate to the downside, accentuating the clear divergence in breadth. This will have to resolve one way or the other in the coming days/weeks.
The Nasdaq has been grinding higher after holding the 200-day MA as support a few weeks ago. It remains the leading index, but looks a bit extended as volume is declining into resistance. More time spent consolidating in this area and a retest of support levels would be healthy for a long-term uptrend.
The S&P-500 remains in it’s range as buyers and sellers battle for leverage. The 200MA held as support again on Friday. There is not much of an edge for swing traders in this trendless range as the majority of stocks will have trouble holding breakouts. Watching for a change.
Stock Updates
Allegro Microsystems (ALGM) broke out through the $47.25 inside-day buy point just below all-time highs, but volume at highs was poor, and it should have been closed out for an even trade after failing at highs. This is what I mean by moving stops up quickly. Continuing to watch for another entry point.
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!
Axon Enterprise (AXON) reset after gapping up over last week’s pivot point. On Friday it printed a tight inside day on the lowest volume in over 50 days, one of my favorite setups, signaling a dry-up in sellers. Watching tomorrow for the trigger above $217 with stops at $212.
Samsara (IOT) gapped up on earnings on the highest daily volume ever traded in the stock, but faded the move and came back down to retest the double-bottom breakout area as support. That held on Thursday, giving a low-risk spot to start a position on a move back up through the 21EMA at $18.30 with stops at $17.70.
Fastly (FSLY) has a metric ton of overhead resistance, but it’s poking it’s head back out after moving up on excellent volume after earnings. It can move for a quick gain. Friday was an inside-day on 45% daily average volume, so I’d consider it if it moves through $16.15 with above-average volume.
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.