Markets broke down below their respective 21EMAs this week as the shaky breadth finally resolved to the downside and reflected in the indexes. The small handful of leaders propping up the broader market couldn’t last forever. The early crop of companies reporting earnings seems to be positive in aggregate, especially the mega-caps like MSFT (+7% today) and META (+12% AH), but that hasn’t yet translated to positivity in the broader market. In fact, the opposite: net lows accelerated today.
Last week, I noted the lack of proper setups, rejections at pivots, breakdowns and bad breadth/volume overall. That kept me on defense, actively decreasing exposure rather than chasing stocks. There weren’t many setups to trigger anyway, so it wasn’t very difficult to avoid this drawdown.
Yesterday, early leaders in semiconductors sold off on volume below their moving averages after failed breakouts. I don’t think growth and tech are going to go very far without participation from this sector, so time is now needed to work it out. Needless to say, there’s still not much around the market in buyable position, and there’s just no need to put on risk here. Rather than wrestle for pennies, I’ll wait for better days when signals are clearer and it’s easier to get aggressive. In the meantime, let’s dive into the indexes and our list of leaders that are holding up decently for now, even if not buyable yet. Let’s get into it!
The Nasdaq completed the rally at Day +29 in the cycle above the 21EMA, which was the same amount of days as the rally earlier this year (I said 28 on Sunday but it was actually 29). Interesting. The biggest red flag for the entire rally was the fact that net highs and lows were never robust, and yesterday this reading accelerated to the downside with triple-digit net lows. We’re now Day -2 in the new cycle below the 21EMA with no reason to be a bull until a new positive cycle begins.
The Nasdaq lost the 21EMA and the key level of support yesterday, back-testing it today but failing and closing at daily lows. That marks two days in a row of distribution on increased volume. It’s still above the rising 50 and 200-day MAs, so look for these levels to act as potential support.
The S&P-500 solidified the lower-high on the daily chart after a series of higher highs; not a great sign that it wasn’t able to break through the $4,200 level. It closed back below the AVWAP from all-time highs as well. The long term lower-low is around $3,800, but the 50 and 200-day moving averages could act as support between that.
Earnings and Macro
More companies report earnings this week along with macro data. Here are my highlights:
Thursday: GDP Data at 8:30am, AMZN, FSLR, MBLY, LLY, CROX, STM
Friday: PCE Data at 8:30am
Hims & Hers Health (HIMS) is still up over 10% from the pivot point after resting on low volume today. It’s holding the VWAP from the breakout point. I’ve updated my stops on the second half of the position to just under $11. Earnings 5/8 - will be out before then.
Lululemon Athletica (LULU) is back-testing the descending trendline at $373 on low volume, passing with flying colors so far. I’m just not interested in buying pullbacks with half the market breaking down, but will continue to monitor this if it sets up in improved market conditions.
On Holding (ONON) is holding well above the $30 inside-day pivot and finding support at the $32 breakout area. Volume is declining near highs. I’m watching for a reset in this one as I missed the original buy - earnings due out 5/16.
Samsara (IOT) completely faded the recent breakout, falling back below the 21EMA. High sell volume hasn’t come into the stock yet, so it could recover and set up again, but I’m avoiding it for now.
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!
HubSpot (HUBS) is still in the flag pattern, not yet breaking the structure despite the market weakness. It held the AVWAP from the earnings gap as support yesterday and was one of the largest gainers on my list today. I’m still watching the descending trendline for a heavy volume breakout, but it’s likely to fail unless conditions improve.
Crocs (CROX) made a monster move from the recent base breakout on several weeks of high-volume up-days. It’s too extended to consider in this area and it reports earnings tomorrow morning. I’ll be watching the reaction and for another setup if it’s positive.
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.
Nice writeup thx for sharing