The Next Market Leaders - 7/24
The markets closed sharply lower on Friday, but still ended the week up around 3%. It’s a good sign to see a pullback here as things were getting extended quick. Now we get to see the real strength of this rally. I’ll be watching closely to see how the indexes react to key support levels and if stocks consolidate for low-risk entries rather than selling off on high volume.
Leadership is still thin, but it’s improving. Many individual names looked to break out last week, but reversed course as choppy trading still dominated and late buyers got stopped out. The feedback I’ve been getting on new buys continues to be poor. That’s a red flag. It’s also a signal to keep new positions small until they start working in my favor, and to only increase exposure after making some progress on my account. A week of earnings heavy-hitters and a Fed decision on Wednesday should prove very volatile, so I’m careful about getting too exposed in either direction.
Below I’ll cover several new stocks I’m watching that have been acting constructively. Let’s get into it!
The Nasdaq is still above the rising 21EMA with net highs/lows positive. The McClellan Oscillator is still at elevated levels at 97, indicating more of a rest is needed. The reaction to the first consolidation period is important to watch to make sure these indicators stay green.
The Nasdaq fell back down through the resistance-turned-support on higher volume than Thursday, counting as a distribution day. This wasn’t a surprise given the overbought readings after the big run-up. The 21MA is crossing above the 50MA, and now I’m looking for this index to act appropriately around the next support area as well as hold the 21EMA.
The S&P-500 fell on lower volume than Thursday and is holding the support line for now. Holding above this line while respecting the 21 and 50 day moving averages would be a very positive sign.
Target Hospitality (TH) is a high-tight flag that crossed up through the $12.60 breakout point with high volume and was up nearly 5% higher before fading back down with the market. Keep stops at $12.
Photronics (PLAB) traded above $22 Thursday on average volume, but I noted that I’d “prefer to see a test of the trendline near $20 first.” Not back-testing first made the extended breakout prone to failure, so I avoided. Keeping an eye on this one.
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!
Occidental Petroleum (OXY) is an oil & gas leader that is fighting back through its 50-day moving average and has dried up in volume over the past few days. I like this one for an early cheat buy on a powerful move through $62.50-$63, after which it needs to continue up the right side of the base.
Range Resources (RRC) is another energy stock that is acting constructively above its moving averages. It reports earnings tomorrow after the close, and if earnings are excellent and the reaction is positive, I would look to buy as close to $30-31 as possible for a gap-and-go scenario.
Funko (FNKO) has made a few stellar moves over the past few years, and could be gearing up to go again. It’s being held down by the market and if that pressure eases soon, this one could make a big move. I’m looking to buy a high-volume break of the trendline around $25.
LABU is a 3x leveraged ETF of the biotech sector. It sold off on Friday with low volume and remains just above the 21EMA. It has respected this moving average for the past month, so it could be a low-risk spot to start a position in a potential leading sector with stops just below $8.
Cal-Maine Foods (CALM) is in the midst of forming a cup-with-handle pattern, showing new highs in relative strength, respect for the moving averages, and excellent volume characteristics. I’d consider starting a position on another test and hold of the 21EMA. Otherwise, we’ll need to wait for this one to build out a handle on any market weakness to give a proper buy point.
That’s all for tonight! See you back here on Wednesday night for an update on our stocks, but keep an eye on my Twitter page for any setups that come up before then.