Markets moved higher today in the second to last session of the week as we have the day off on Friday for observance of the holiday. The rally was led by commodities/cyclicals as well as oversold stocks in technology, and it came on lower than average volume in both the indexes and many individual stocks like TSLA, NVDA, and AAPL. This makes me a bit dubious. The indexes are still down roughly 1% on the week.

Short-sells setups from the last issue worked briefly but stopped out for the most part (mostly in profit or breakeven for me) on the volatile swings that the market is undergoing. I’m 100% cash, and didn’t make any moves today as I was away from the desk and there wasn’t much that triggered anyways.

Tonight, I’ll cover a few cyclical stocks that have tightened up nicely to provide solid risk/reward opportunities, keeping in mind that it’s good plan to maintain a very high percentage of cash going into the long weekend. Let’s get into it!

Index Update

The Nasdaq remains below a falling 21EMA with net highs/lows negative for 5 days straight, signaling very strong caution on long positions. Here you can see the progression over the past two weeks:

The Nasdaq managed to breakout of its descending wedge pattern by a hair today, and if it’s able to hold yesterday’s low through next week, that would be a good sign as it could be the start of an inverse head and shoulders pattern. It’s still below all of the key moving averages, so it will need to retake the 21 and 50 daily moving averages before getting too involved. I don’t need to catch the bottom and neither do you.

The S&P regained it’s 50-day moving average, albeit on lower volume. I will be watching tomorrow’s close closely for it to hold this area, otherwise it could be headed back down to the lows. If it does hold, next up is the 21EMA and 200MA as resistance.

Stock Updates

Etsy (ETSY) broke down from a bear pennant and it sold down over 11%. My stops in profit hit yesterday on the big swing up.

Upstart (UPST) is still down over 12% from my $99 sell point, but I took profits yesterday. Still looks like it will be headed lower if it cannot continue to bounce with higher volume tomorrow.

Best Setups

Allegheny Technologies (ATI) is a metals manufacturer that’s been on a big run since early February. It has traded in a tight range for the past several weeks on declining volume, exactly what I want to see in a flat base pattern. It closed today right near the breakout buy point at $28.50, but volume was still low. I’ll look to buy tomorrow if volume can come in to support the breakout with stops $1 lower.

General Dynamics Corp (GD) is a defense company that’s setting up nicely, tightening up in it’s base on declining volume. The buy point is a move above $247 on volume with stops at $241.

Lockheed Martin Corp (LMT) is another defense stock that’s printing new highs in relative strength before price and tightening up on the daily. The buy point is a breakout above $475 with technical stops below today’s low at $465, providing a good risk/reward ratio.

Turquoise Hill Resources (TRQ) is a gold and copper miner that gapped up on its highest volume ever a few weeks ago. I’m not seeing many sellers in the stock as volume has declined steadily within the base pattern, so the breakout buy point is a move above $30.75, but only with high volume.

Diamond Offshore Drilling (DO) is a new IPO in the energy sector that can move, as we’ve seen in other new issues like SST and BRCC lately, if it breaks out through $8 on high volume. Energy stocks are still running so the group is solid. I’d place the stop a little wider than usual, around 4-5%, so I’d use a smaller position size to compensate for that.

Targa Resources Corp (TRGP) is another energy stock with a good pattern and it printed a new high in relative strength today. If volume comes in through $78 tomorrow, I’ll be a buyer with stops at $76.50, providing a solid risk to reward.

FMC is an agricultural stock that has the wind at its back and printed a new high in relative strength today as well as two inside-days in a row on a significant decline in volume. The buy point is a breakout through $39 with stops 2% lower.

That’s all for tonight! If you liked this column or have any feedback about the content, hit me up on Twitter with the link below or respond to this email.

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

Cheers,

Danny Deals