The Next Market Leaders - 5/8
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The market rout continued last week as many growth stocks, particularly software, seem to be entering the capitulation phase of the cycle. Shorts are working in a big way with directional moves to the downside. As you can guess, longs are not working, except for energy stocks, which rebounded to the upside last week.
With indexes remaining below all declining key moving averages, it’s not the time to be a hero. I’m happy to be in 100% cash for now, and when it’s time to establish new positions, I’ll start small (i.e. 5% position sizes until trades start working) and move stops up more quickly than usual.
Another week of earnings season is upon us as hundreds of companies across the board are reporting this week. I wouldn’t be surprised to see a surprise gap-up in many of the stocks that have been beaten down recently after being piled into by short-sellers. It’s too late to consider shorting here, but some energy stocks are setting up nicely for potential breakouts. I’ll cover those in this issue. Let’s get into it!
Index Update
The Nasdaq remains below a falling 21EMA with net highs/lows negative for 23 days straight, signaling very strong caution on long positions. These two indicators need to turn yellow and then green for any sort of sustained move up.
A choppy session last week as the Federal Reserve meeting and press conference on Wednesday led to a short-covering rally, but ultimately the Nasdaq broke back through the lows and closed near the low of the week. It’s now down nearly 17% in just five weeks. No need to force it before a clear bottom forms.
The S&P-500 is faring just slightly better, having not broken back down through the low set on Monday 5/2. Still, it’s also below all declining moving averages, showing that cash is the place to be for now.
Earnings Reports
Tons of earnings reports are due out this week. These could provide solid gap-up/bounce plays if earnings are better than expected, given the fact many of these names are oversold. Here are a few highlights:
Monday
Before Open: PLTR, GSL, DUK, BNTX
After Close: UPST, AMC
Tuesday after close: SOFI, RBLX, OXY, TTD, COIN, U
Wednesday after close: RIVN, BROS, BMBL
Thursday after close: AFRM
Stock Updates
Arch Resources (ARCH) broke up through $176.40 on Wednesday, but it came on low volume and I noted to look for heavy volume. Still watching this one for volume to come in on a move above $180.
Diamond Offshore Drilling (DO) triggered the $8 buy point on Wednesday but was unable to make any real progress before selling back down. It printed an inside-day on Friday which gives a good buy point of $8 and stop loss at $7.75 if it trades back up with high volume.
Best Setups
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!
Antero Resources (AR) traded up on it’s highest volume in a year after reporting earnings 4/28. On Friday it flashed an inside-day on lower-volume. The buy point is a move through $38 on heavy volume with stops just below $37.
BP Prudhoe Bay Royal Trust (BPT) is one of the year’s highest gainers and traded back up through it’s 50 and 21-day MAs after a brief undercut on low volume. Volume is now coming back into the stock as it traded on a volume pocket pivot Friday (higher volume than any down day in last 10 days). If heavy volume continues through $16, I’d look to buy with tight stops.
San Juan Basin (SJT) is a smaller oiler name that’s tightening up after a big move from $8 to $12. It’s resting on average volume, so if volume came back in on a move up through $11.50, I’d look to enter with tight stops.
Lastly in energy, Exxon Mobil (XOM) made a nice move into 52-week high territory last week and looks like it’s ready for more. I’d consider buying into a breakout above $92 with high volume. Stops just below $90.
Advanced Micro Devices (AMD) surprised with an earnings result 25% above expectations and raised their full-year guidance. The stock recovered on the highest volume in a year, and now looks poised if the market can bounce. I’d look to buy a cross back up through the $100 century mark if the broader market is bouncing as well.
That’s all for tonight! See you back here on Wednesday night for an update on our stocks.