Markets are attempting to bounce from the bottom after putting in four up-days last week. Many stocks, mostly in biotechnology, but also in oversold sectors like software and retail, broke out and held solid gains. For the most part, these did not come out of solid base patterns.

My concerns remain the same as last week; market leadership is limited and meaningful volume has not yet shown up on this move. With very few tight, clear stock setups (long or short), I tend to think that we are in for more choppiness in the short-term. Core CPI gets reported on Wednesday morning; any decline or sign that inflation has peaked may lead to the higher influx of buying activity that I’m looking for on the bounce. The opposite could be disastrous for stocks. That’s why it pays to have a risk-first approach right now.

In any case, there will be plenty of time for more stocks to set up chart patterns if we have indeed formed a bottom. Tonight I’ll cover several updates on setups that have been working along with a few others that I’m watching. Let’s get into it!

Index Update

The Nasdaq regained the 21EMA last week, but net highs/lows remain negative. This looks close to flipping to neutral if net highs can win out this week. For now, it signals caution on long positions.

It tested the falling 50-day moving average as resistance on Friday but closed below on low volume. This is potentially a signal of low demand in this area. There is a lot of resistance and liquidity right above the current price as noted by the orange lines on the chart. For these levels to break to the upside, we’ll need high volume. Watch for the 21EMA to be respected as support.

For some context, look how high the 200-day moving average is above current price (in white). We’re a long way from a new long-term uptrend.

The S&P-500 tested and held the 21-day EMA as support but traded on the lightest volume in 50 days. Volume has fallen for 4 days straight, though some of that is to be expected during the short holiday week. Watch for a high volume break through the upper orange line and then the 50-day moving average to signal a higher-high.

Stock Updates

Halozyme Therapeutics (HALO) was featured in Wednesday’s letter and broke through the buy point of $47.40 on high volume Thursday. It closed over 9% higher. I’d look to take some profit if you haven’t yet and move stops up to even on the rest.

Digital Turbine (APPS) perfectly hit the liquidity zone at $19 last Wednesday and sold off immediately. It’s down 9% from the sell-short point and hasn’t participated at all in the market bounce, meaning relative weakness. I would ADD to this short if it broke down through the bear-flag at $17 with stops $0.50 higher.

United Therapeutics (UTHR) touched all-time highs last week and closed above my $243.50 buy point, but volume was low. I moved up the buy point to $245.50 if supported by stellar volume with stops at $238.

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!

Enphase Energy (ENPH) is a leader in solar and is setting up for a breakout as seen in the weekly chart. The relative strength has been steadily increasing. I’d like to see another test of $200 before a high-volume breakout at $221.

Global Blood Therapeutics (GBT) has enjoyed a big move up in the past few weeks and could be ready for more after printing two inside-days in a row. I’d look to buy a high-volume breakout through Friday’s high at $35 with tight stops at Friday’s low of $33.75.

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

Cheers,

Danny Deals