Markets continued with a large move up on Friday after I noted in Wednesday’s issue that “sell pressure may be drying up” and “a short squeeze could be coming”. Friday technically counted as a follow-through day, but not before huge volume came in at the end of the close due to Russell indexes rebalancing, which leads me to discount the signal a bit.

I’m staying skeptical and treating this rally as a bear-market bounce until additional confirmation appears in the form of net highs, more stock setups, and indexes holding support levels. We’re still seeing daily net lows and setups remain scarce. Downtrend conditions have not changed. Therefore, unless things change, I will look to take quick profits on positions and cut them even quicker if they stop working.

A few of my recent picks have hit their buy points and traded higher, including VRTX up 5% and SGEN (noted on Twitter) up 2% so far. I also picked up TQQQ at the open on Friday after it gapped up through the key level. I sold half for +7% and am holding the rest with stops in profit.

Tonight I’ll cover updates and a few stock setups. Let’s get into it!

Index Update

The Nasdaq managed to break through the falling 21EMA, but net highs/lows remained negative, signaling caution on long positions. This serves as a barometer for the sketchy health underneath the surface even with indexes up over 3% on Friday.

It gapped up on Friday above the key level and continued through the 21EMA on good volume, but again, before the rebalancing event, it was tracking for well below-average volume. There isn’t a ton of room to move to the upside as the liquidity zone roughly coincides with the 50MA as resistance. Be careful buying in those areas without roaring volume. Look for the 21EMA to hold as support.

The S&P-500 closed just above it’s 21-day moving average, looking a bit more vulnerable to get rejected quickly. If it holds, watch for a move up to the 50-day moving average. If it trades up to this average on light volume, I’ll be watching for short-sell entries.

Stock Updates

Vertex Pharmaceuticals (VRTX) hit the buy point of $280 with high volume on Thursday. It came back in and tested this area the next day, holding it to the dollar. It’s now 5% higher. Move stops just below $280.

Seagen (SGEN) formed a short ascending triangle after trading up on its highest volume ever the previous week. It broke out on Friday past $175.50 on high volume. Stops at $173.

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!

DAQO New Energy (DQ) is a China-based solar manufacturer showing relative strength in a good group. It regained all the key moving averages and the shorter MAs are pointing up. The buy point is a high-volume move through $70 with stops at $68.

Halozyme (HALO) is a biotech company that has been printing new highs in relative strength with great volume characteristics. It got rejected at 52-week highs Friday, so I’d like to see it come back in and find support at the 21EMA. I’d consider it on a pullback to ~$45 or a breakout above $48.60.

That’s all for tonight! See you back here on Wednesday night for an update on our stocks.

Cheers,

Danny Deals