The Next Market Leaders - 5/24
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Markets have choppily slid to the downside this week as investors await hard news on the debt ceiling bill agreement amidst all of the recent talk. Indexes found their footing to close out the day today, and are up big in post-market trading on NVDIA’s earnings results and massive guidance raise. On the earnings call, they said that generative AI is driving exponential growth in compute requirements and thus significant demand for their products, resulting in a 57% upside of revenue guidance for Q2 on the high end vs. analyst expectations. Shares are up 25% in after-hours, and many similar stocks (AMD, TSM, SMCI, RMBS) are rallying in sympathy.
This is a big win for the market’s prevailing sector: anything related to AI. Now let’s see if it’s enough to pull to market to new YTD highs, even though breadth remains decent at best and the majority of stocks on my radar aren’t in buyable position. Things are improving, though. Stock are making moves on the back of earnings results and the broader indexes continue to flash higher-lows. It’s a mixed picture, and still difficult to get a hold in stocks, but the one thing that’s for sure is that bears aren’t making any money.
It has taken extreme selectiveness and precise entries, along with tight risk management, to be profitable in this market, and that looks to continue for the near future. We’ve had some nice gains in recent setups (SMCI 30%+, NVDA 8%), and I’m looking to add more into those if they act well on the gap tomorrow. Setups highlighted below. Let’s get into it!
Index Update
The Nasdaq closed Day +14 in the rally above the 21EMA, but net highs/lows slipped negative again today after finally switching to three days in a row of net highs. Still choppy, but a slight improvement.
The Nasdaq back-tested the ascending trendline and held as support for now. This is exactly what I was looking for, as I noted on Sunday that it was getting extended. The pullback feels more dramatic than it is, so this is constructive action unless it breaks down below the trendline.
The S&P-500 got rejected at the key 4,200 level and closed below the 21EMA today, back in the trading range. Not a great sign. This index looks quite a bit worse than the Nasdaq, reflective of the action in the broader market outside of tech. Watch for it to regain the 21EMA and try another breakout, or for the AVWAP from all-time highs in purple to hold as support.
Earnings and Macro
Thursday: GDP and Initial Jobless Claims at 8:30, WDAY
Friday: Core PCE at 8:30
Stock Updates
Shopify (SHOP) tried to break out through the tight price range above the AVWAP from highs, and worked initially, but closed back at the buy point with just average volume. It sold off the next day, but you should have been out by then as there’s no reason to let a winning trade go against you in this market.
MercadoLibre (MELI) had a subpar base to begin with... it tried to move up through the $1,338 level but failed the same day. Avoiding this one for now as I don’t love the erratic way it trades.
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!
NVIDIA (NVDA) broke out through the $292 pivot point and was up over 8%, but I noted to sell before earnings. It’s up 25% after hours… in hindsight, I suppose we could’ve held through earnings, betting on the AI tailwinds, but it could have gone either way. I’ll be watching the reaction on the earnings gap in early trading tomorrow to potentially add it back with a low-risk stop a bit under the day low.
Super Micro Computer (SMCI) is a big recent winner, up 30% from last week’s $140 pivot point. It’s moving after-hours given it’s relation to the NVDA earnings. I missed the original buy as I was traveling last week, so I’m looking to potentially add in tomorrow’s trading based on the gap reaction, or ideally on a test and hold of the $171 all-time high area in the coming days.
Elf Beauty (ELF) posted a solid earnings beat this afternoon and raised FY24 earnings and revenue guidance modestly. It’s trading around the $96 area in post-market. I’m watching the reaction tomorrow morning to buy if it gaps and goes on heavy volume through $97. A test and hold of support around $93 would be ideal for a buy with tight stops.
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.