The Next Market Leaders - 5/11
Markets have sliced through lows as the capitulation phase that I noted in Sunday’s letter has carried into this week so far. With emotional trading taking over, the Nasdaq is down a whopping 6.4% this week alone, and -27% year to date. It is quite extended to the downside so some form of bounce could be near, though how powerful remains to be seen.
When a train comes through, it’s best to get out of the way. I’ve been in cash since 4/3 and hopefully you have too, because there’s not much to be made in the way of swing trades. There are day-trades to be had given the volatility, but I’d rather sit out until the smoke clears than fight for pennies. Tech earnings have largely been getting smoked; take UPST, down an incredible -66% this week on top of a -50% YTD decline.
Tonight I’ll cover an update on the indexes and the lone setup I’m eyeing for a bounce play. Let’s get into it!
The Nasdaq remains below a falling 21EMA with net highs/lows negative for 26 days straight, signaling very strong caution on long positions. This indicator alone has protected us from the vast majority of the downside in the past few weeks.
The Nasdaq has closed lower 5 days straight and is now 10% below it’s 21EMA - a wide gap that one should be aware of if considering short positions. A short-term bounce seems imminent, but this index remains well below all declining key moving averages, so we’ll have to wait and watch for a bottom to form before getting too involved.
The S&P-500 is faring slightly better than the tech-heavy index as it’s “only” down -17.5% for the year, but it’s also well below all declining key moving averages and at yearly lows. A bounce up to the prior support area in orange seems likely, which is closer to where I’d look to establish some short positions.
Noteworthy earnings reports this week and stock performance since the report release if applicable:
Monday: PLTR (-30%), GSL (-7%), DUK (-1%), BNTX (+6%), UPST (-64%), AMC (-17%)
Tuesday: SOFI (+4%), RBLX (+3%), OXY (+1%), TTD (-1%), COIN (-26%), U (-37%)
Wednesday after close: RIVN (+4% after hours), BROS (-30% AH), BMBL (+10% AH)
Thursday after close: AFRM
All of the energy stocks that were noted on Sunday night sold off heavily on Monday and didn’t trigger any of the buy points. Nothing seems to be working in this market which is why it’s best to be in cash for now.
The setups below are ideas, not outright buys; placing a trade is discretionary and depends on both the price action and volume. 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!
Advanced Micro Devices (AMD) is a bounce play if the market can turn around. It made a higher-low when the market made a lower-low and didn’t break the weekly lows today when the market did. That’s relative strength. I’d look to buy a cross back up through the $100 century mark (and maybe a bit before through the 21EMA in blue) if the broader market is bouncing as well.
That’s all for tonight! See you back here on Sunday night for an update on our stocks.