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The Next Market Leaders - 4/5
Markets sold down after being slightly extended as growth stocks were hit across the board today. Almost every stock on my broader watchlist closed in the red with most being down 2-3x the Nasdaq drawdown, and a few highly-watched names sold off even more aggressively.
Not exactly the type of action I was hoping to see on a period of rest in the indexes. Ideally, leading names would have shown more relative strength by resisting the drawdown instead of sweeping out stops, but that’s how it goes sometimes. Trading is a game of probabilities where one can only control the input, not the outcome. I was positioning for a broader market move that didn’t end up materializing, so now I’m back to cash with minimal damage done.
That all being said, the pullback in the indexes appears to be relatively healthy and most growth charts are not at all broken. The action today just tells me it’s not quite time for a bigger move. We could still be close, so it’s vital to stay vigilant and not let the market wear you out. The market is closed on Friday, so after getting pushed back to cash today, I’m not planning on making any moves tomorrow as there aren’t many actionably setups and I’m not feeling the need to force it. Perhaps that will change by the weekend. Tonight I’ll cover updates on the indexes and how the potential leading stocks from Sunday have fared so far this week. Let’s get into it!
The Nasdaq closed Day +17 above the 21EMA, but net highs/lows accelerated to the downside today and marked a distribution day. Poor breadth continues to be the one sticky point in this recent rally.
The Nasdaq sold down to retest the breakout area and held it as support despite trading on distribution day volume. A consolidation was expected and further consolidation would be healthy, but I’m watching for this support level to hold while the moving averages catch up to price.
The S&P-500 closed down just 25 basis points after a successful retest of the anchored volume-weighted average price from all-time highs (in pink). 4100 is a key level to watch in the coming days.
Super Micro Computer (SMCI) moved up and out from the low-risk pivot point just over the descending trendline at $108 was up more than 8% before giving it all back. It looked great to hold for a bigger move up until yesterday afternoon, at which point I sold it for only a small gain.
Palo Alto Networks (PANW) moved up through the $193 inside day pivot point and was up 4% before printing two inside-days this week and falling back down to the pivot. It hit my stops at $194 but did end up holding the pivot area as support, so I’m continuing to monitor this one in the coming days to potentially add it back.
On Holding (ONON) broke out through $31.50 with volume on Monday before coming back in with a weak close. It gapped up yesterday and then gapped down today on a downgrade, closing near the lows with high volume. It’s still holding the AVWAP from the gap day, so I’m watching for it to set up again.
Lululemon Athletica (LULU) moved up through the short, tight flag at $364.50 and held that area today while trading on below-average volume. I elected to take risk-off as I was looking for it to work right away, but stops at $361 if you’re in. Keeping it high on the list for another entry.
MercadoLibre (MELI) broke out through the key $1,250 key level and was up over 5% before returning to the breakout area today. I sold after it broke down through $1285, but it still looks OK here, so I’ll be monitoring it to potentially add back.
Fastly (FSLY) was up 6-9% from both inside-day buy points, but the overhead resistance proved to be too heavy as upside volume never really came into the stock. It came back down to stops on Monday and continued much lower today. Taking off my list 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!
Arista Networks (ANET) tested and held the $165 area but then came back down with the index weakness today. An undercut an rally of the $160.50 area, where it has a confluence of support of the 21EMA + Friday’s low, could be a very low-risk spot to start a position if the broader market is bouncing as well.
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.