The Next Market Leaders - 7/13
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Markets found support after gapping down around 1.5% on the news of a hotter-than-expected CPI reading, coming in at 9.1% vs. average expectations of 8.8%. It’s not the news, but rather the market’s reaction to the news that matters. The reaction leaned slightly positive as markets closed nearly even today. Nonetheless, volume remains below-average as we’re in the heat of the summer lull. Illiquid, news-driven, emotional trading is still dominating and futures are down 0.50% tonight.
Though I’ve made single-digit gains on a few short positions recently and still suspect there might be another leg down, it feels about time to stop looking for shorts sells. The next market leaders are starting to emerge and I want to be fully focused on finding and executing on them when the market does turn. I think this might be in the next 1-3 months.
For now, there’s just a few charts setting up, so I’ll cover those below. Let’s get into it!
Index Update
The Nasdaq was unable to hold the 21EMA this week while net highs/lows have remained negative for the entirety of the brief uptrend so far. Both indicators are now in the red (though not far from green readings in this case), signaling strong caution on long positions.
The Nasdaq was clearly rejected from the 50-MA and coaligned resistance noted on the chart from Sunday night. It sliced back below the 21EMA and is once again below all declining key moving averages. It did hold the ascending trendline for now, but volume hasn’t come in on either direction yet. Look for today’s low to hold and for the 21EMA to be regained with volume.
The S&P-500 lost the 21EMA and the lower support level that I was watching, but it did hold up today while carving out what appears to be a higher low. If it can’t move back above resistance and the 21EMA in short order, it could head back to the lows or worse. It’s clear that the trend is still pointing down.
Stock Updates
Halozyme Therapeutics (HALO) was holding up well after breaking out from the $47.40 buy point, but today it closed near the lows of the daily range. I noted to take some profit around +9% and move stops up to even on the rest. Those stops have held thus far but could trigger soon.
Digital Turbine (APPS) perfectly hit the liquidity zone at $19 and this week it broke down through the bear-flag at $17 where I noted to add to the short-sell. It moved nearly 9% lower from the second short-sell point before finding support and bouncing today. I covered the whole position around $16.20 for a 6% gain.
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!
Li Auto (LI) is a China-based electric vehicle company with stellar earnings and revenue growth. The stock performance over the past few weeks has been impressive, up over 100% from the lows it set in May. The high-volume days on the move up are equally impressive. It held the 21EMA as support today, so the buy point is a high-vol move above $40.
Merck (MRK) is a slower-moving drug manufacturer, but it has one of the best chart patterns in the market with solid relative strength along with a dry-up in volume through the base. The buy point is a breakout through $95 on high volume with stops at $93.
Sierra Wireless (SWIR) has the characteristics of a potential future market leader. Yesterday, it broke out of a shallow cup base on high volume. It could be bought on another test and hold of the $25 area if the market is holding up, but otherwise I’m keeping it on my watchlist for another entry point.
DAQO New Energy (DQ) is a Chinese manufacturer of semiconductors used in solar panels and has been trading in a nice pattern with great volume characteristics. It regained the 21EMA today which provided an excellent undercut-and-rally entry point with low risk, but I missed it in all the commotion this morning. Watching for another entry point.
That’s all for tonight! See you back here on Sunday night for an update on our stocks.