The Next Market Leaders - 5/21
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Market indices broke out to the upside last week, highlighted by a trend day on Thursday, but breadth remained somewhat poor as the rally has been carried by mega-cap tech leaders in the Nasdaq. The debt ceiling negotiations between Senate leaders remains in focus for the market as a failure to reach an agreement could lead to significant downside. The erratic price action lately highlights this fact. After the rally earlier in the week was sparked by news of an imminent agreement, Friday brought news of a pause in discussions and the markets faltered.
There were a handful of stellar opportunities to capitalize on last week, a few of which were highlighted in Sunday’s letter, including SMCI up 18% and NVDA up 7%. The number of quality stocks setting up and breaking out is still low (though improving slowly), and that gives me pause as to how long the rally will continue. That’s not to say that things can’t improve in a matter of days; I’m just not seeing it yet, so it pays to be extremely selective with takes.
I’m continuing to monitor futures markets for setups as this area has contributed to most of my profits this year. In stocks, I’m finding success by having a narrow execution focus of only the best setups on my radar. I’ll detail a few top stocks I’m watching to start out the week below. Let’s get into it!
Index Update
The Nasdaq closed Day +11 in the rally, with net highs/lows still not able to string together three days of net new highs. It could occur as soon as tomorrow.
The Nasdaq powered up through the resistance area and closed strong on the week as the rally continues. It could use a bit of a break to retest lower levels as support as it looks extended here.
The S&P-500 stalled out at the key 4,200 level with Friday’s news that debt ceiling discussions had paused. This was after it broke out Wednesday from the tight range it had been in since the beginning of April. It’s above all key moving averages, but I wouldn’t be surprised to see further consolidation before trying to breakout again.
Earnings and Macro
Here are my highlights:
Tuesday: PANW, NEWR
Wednesday: FOMC Minutes at 2pm, ELF, NVDA, SNOW
Thursday: GDP and Initial Jobless Claims at 8:30, WDAY
Friday: Core PCE at 8:30
Stock Updates
Super Micro Computer (SMCI) was the top setup on last Sunday’s report and broke out beautifully from Monday’s inside-day just under the $140 pivot point. It’s up 18%, where I’d consider taking some off for profit. If you didn’t get in, I’m looking to add around the $150 area on a test/hold of the VWAP handoff.
NVIDIA (NVDA) broke out through the $292 pivot point, where I noted the strong uptrend could continue, and it’s up 7%. A break of the inside-day to the downside at $309 is where I would look to sell it as it reports earnings on Wednesday.
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!
MercadoLibre (MELI) isn’t exactly perfect, with a big shakeout through the base and a lot of volatility, but I’m watching for a strong breakout through the $1,338 level, which has been established as a clear pivot point. A few more days of tightening up underneath that level would be even better.
Shopify (SHOP) gapped up on huge volume after its last earnings report and is flagging back into the AVWAP in purple. I’m watching for a high-volume breakout through $62, which provides a good risk to reward trade with stops just under $60.
Elf Beauty (ELF) reports earnings on Tuesday; let’s see if this monster leader can continue from here. It recently moved up through the descending trendline, loosely holding the 21EMA as support, and back-tested that level on Friday. If it beats earnings expectations yet again and the market reacts positively, I’m watching the $93 level for a strong move.
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 Wednesday night for an update on our stocks.