The Next Market Leaders - 4/12
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Markets continued to show a lack of conviction to the upside and resolved lower today despite lower than expected inflation data. Breadth was poor throughout the day as the ratio of stocks that were red vs. green closed at about 1:3. Most stocks that showed signs of working initially on the gap were sold into as everything faded and the market closed at daily lows.
Not much has changed this week in terms of my strategy. It’s clear that breakouts are still not working. That’s good feedback off the back of last week’s feedback of getting stopped out of open positions. Until the evidence changes in the form of more stock setups, upside volume, net highs in stocks, and breadth improvement, it’s best to wait it out unless you want to get chopped up.
Tonight, I’ll update on the latest index action and leaders that I’ve been eyeing for entries over the past few weeks, most of which make it clear that a bit more time is likely needed. Let’s get into it!
Index Update
Despite the Nasdaq closing Day +21 above the 21EMA, net highs/lows haven’t been positive for three days in a row for nearly two months. The choppy, low-conviction action underneath the surface will persist until this changes.
The Nasdaq printed two inside-days in a row this week that resolved lower today on increased volume. That’s generally not a good sign. It closed just below the area I was looking for it to hold as support, but it’s still above the 21EMA and other rising moving averages for now.
The S&P-500 gapped up to the resistance area this morning and got rejected swiftly, putting in a double top as sell volume ticked up to mark a distribution day. It’s still above the VWAP from the all-time high in purple, and just below that is the 21EMA which could act as support.
Earnings and Macro
Thursday: Initial Jobless Claims, PPI at 8am
Friday: JPM, WFC, Retail Sales Data at 8am
Stock Updates
Arista Networks (ANET) undercut and rallied through the $161 pivot point and held stops at $157, but hasn’t found any momentum so far, so I closed it out with breadth looking weak. Nonetheless, it’s holding the 21EMA nicely so it’s high on the watchlist if the market improves.
Samsara (IOT) held support at the 21 exponential moving average (in blue). On Sunday I noted that it needed a bit more time before trying a breakout of the descending trendline around $20. It tried today and failed. Keeping it on the radar as it’s acting better than most but volume has still been understandably low.
On Holding (ONON) is still, just barely, holding the anchored VWAP from the gap day. It needs to consolidate a bit longer to set up another buy point. Perhaps a test/hold of the 21EMA could be a spot to start a position, to add on a close back above the VWAP.
Hims & Hers Health (HIMS) slipped down through the 21EMA and VWAP from the recent price low. Not a lot of conviction in this name, but maybe it can set up again in the coming weeks if the index action improves.
Lululemon Athletica (LULU) is holding the gap-up area quite well, but the flat anchored VWAP from the gap indicates indecision. It might need a bit more time to properly set up while the indexes work it out. I’m watching for a high volume move through the $370 level as well, but wary of the fact that breakouts haven’t been following through.
MercadoLibre (MELI) moved back up through the $1,250 pivot point but it completely faded the gap today and closed at lows. There’s a lower-high in place for now. Keeping this on the watchlist for another setup to materialize.
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!
No setups tonight. Stocks need more more time to set up properly and I’m not forcing it to close out the week unless things change materially.
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 Sunday night for an update on our stocks.