The Next Market Leaders - 3/5
Markets staged an epic shakeout in the indexes and individual stocks on Thursday before closing strong and following through on Friday. The indexes closed above their respective 21-day EMAs for a new cycle and technical resumption of the primary uptrend. Breadth expanded as well.
This serves as more than enough evidence to begin building and adding upon long positions, with risk management in mind, if you have not yet already. I noted last week that “the way that the highest quality stocks have been showing relative strength is what will tip the scales for the bulls”. That theory was tested on Thursday morning, but after almost every leader recovered heroically from the gap down, the game was on.
On top of that, I’m seeing the most setups in potential market leaders that I can remember in the past 14 months. This doesn’t mean to abandon risk; I am still progressively adding and waiting for open positions to show profits before increasing too aggressively. But, if setups below are moving through proper pivots with high volume, now is not the time to hesitate. Watch out for macro news and Fed speak this week; the best thing would be more muted reactions in the indexes as the market moves on. We’ll see. Either way, my focus will be more on the reaction in the leading stocks below. Let’s get into it!
Note: I’m traveling this week, so there will be no Wednesday night issue.
Index Update
The Nasdaq tested and held the 200-day MA, which is now flat and about to start rising, and then followed through to close above the 21EMA for Day +1 in the cycle. Net highs accelerated to the highest number since the start of the short-term downtrend.
The Nasdaq is back above all key moving averages after closing above the 21EMA. Now it needs to hold and show some follow through off of this level. I wouldn’t be surprised to see a back-test early this week. The 50MA should trend above the rising 200MA in the coming weeks, at which point all key MAs would be trending up, in order, for the first time since 2021.
The S&P-500 is also back above the 21EMA and 50MA after passing the vital 200MA test with flying colors. Look for it to hold above at least the 50MA in the coming days and test the short-term descending trendline as resistance.
Earnings and Macro
Some companies are still reporting this week as we close out earnings season along with a good amount of macroeconomic news + Fed speak. Here are my highlights:
Tuesday: Powell Testifies at 10am, MBC, ESAB, YEXT
Wednesday: Powell Testifies at 10am, LTH
Thursday: Initial Jobless claims at 8:30am, ARHS, ORCL, ULTA
Friday: Nonfarm Payrolls, Unemployment Rate at 8:30am
Stock Updates
NVIDIA (NVDA) turned back up through the $230 pivot point after shaking out on low volume down to the 10MA, and I bought back in for a low-risk trade with stops around $223. Volume hasn’t turned up yet, so I’m watching for it to come in above $239 to add to the position.
Allegro MicroSystems (ALGM) is up 26% from the first buy and perfectly tested the 21-day EMA, which turned out to be the best spot to add this leader. It later moved up through the short base pivot of $45 where I added. I would look to increase size further on a high-volume move to highs at $46, as this is a clear leader in semiconductors.
Lattice Semiconductor (LSCC) is up 5% from the two inside-day buy points last week. It’s acting constructively, but volume has been well below-average on the way up. That makes me a bit cautious. Watching for follow-through volume to come in this week.
Qualtrics International (XM) moved up through the $16.75 pivot point but is still meandering around above the pivot with another inside-day Friday. If upside volume doesn’t come in, I’ll close it out below $16.70.
Super Micro Computer (SMCI) retested and held the $95 breakout point, where I noted you could add with stops at $92. I avoided for now, but watching for a breakout of the bull-flag on high volume.
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!
Crocs (CROX) is looking quite nice after trading on two inside-weeks in a row. It’s coiled for a big move in one direction or the other, and the primary trend is positive with all key MAs rising. I’d look to buy this one on a move above $126.50 with stops at $121.
Axcelis Technologies (ACLS) staged a massive shakeout down to the 50-day MA and closed positive on high volume. Buyers snapping it up on the dip is a bullish sign of accumulation despite the very broad range. It traded in tight range on Friday, which provides a good spot to manage risk on breakout above $130.50.
STMicroelectronics (STM) is flashing a bull flag within the context of the handle of a 15-month, 45% depth cup-with-handle pattern on the weekly chart. It held the 21EMA on high volume accumulation Thursday. I’m watching to start a position on a breakout above $49 with stops just below the 21EMA.
MercadoLibre (MELI) reported stellar earnings results a few weeks ago and is now peaking out of a short consolidation pattern. It could be worth a try for a move into Stage 2 despite being well off all-time highs. I’d consider it in early next week’s trading as close to $1223 as possible with stops at $1185.
Hims & Hers Health (HIMS) had a positive earnings report and gapped up too far through the $10 pivot point to add. It tested the pivot point on a gap back down and held for now. It posted an inside-day on Friday, which could be a good spot to buy, depending on the daily open (to use as a stop) and volume, as I’m not sure I want to risk 5% on this one.
Life Time Holdings (LTH) powered back up through the 21-day EMA and is entering week 4 of the handle area on the weekly chart. It reports Q4 earnings on Wednesday. I would look to buy a positive reaction above $19.30 or $20.
That’s all for tonight! I love to hear from you all, so if you have any feedback or questions, just reply to this email or hit me up on Twitter.
I’m traveling this week, so I’ll see you back here next Sunday night for an update on our stocks.