The Next Market Leaders - 7/27
Markets rallied hard today on positive reactions to earnings reports from ENPH, CMG, GOOG, and MSFT. The move accelerated on news that the Federal Reserve increased interest rates by 75 basis points as expected, and Chairman Powell hinting at potentially pumping the brakes on the pace of future increases in his press conference.
We still have a few more big earnings report this week that should continue to add to the volatility, including AAPL, AMZN, and INTC tomorrow. It was great to see the continued momentum today and this is a step in the right direction. Keep in mind that it’s absolutely not time to dive in headfirst as we are still in a longer-term downtrend, but it is the time to start testing out some buys and slowly increase exposure/size as things work.
There still aren’t too many setups, and it can take time from when the indexes bottom to when there are rock-solid stock patterns, so there’s no rush to get busy. Tonight I’ll cover updates on our stocks that have passed buy points, others setting up for this week, and more that are showing signs of market leadership. Let’s get into it!
The Nasdaq is above the rising 21EMA with net highs/lows positive. The McClellan Oscillator is running hot at 134, indicating some caution with buying here. It’s great to see these indicators consecutively staying green for the first time in months: it’s a signal to start trading more aggressively on solid setups.
The Nasdaq found support at the 21EMA and gapped up today, moving through the resistance line in orange and closing near the highs. I’d like to see it hold above this orange line to finish the week. Note that the declining 200-day moving average is still way above the price, signaling that we’re still in a long-term downtrend with a lot to prove.
The S&P-500 held the 50-day moving average as support and gapped up above the resistance line today. It closed near the highs with above-average volume. This is starting to look constructive as now the moving averages are converging and turning up. These levels should continue to hold if the rally has legs.
Target Hospitality (TH) is a high-tight flag that crossed up through the $12.60 inside-day breakout point with high volume and held the stops just below $12. Now it’s up 10%, and I would take some profit off here while moving stops up to even.
Occidental Petroleum (OXY) crossed up through the early cheat buy at $62.50-$63, but it wasn’t powerful as volume never came into the stock. Keep watching for higher volume.
LABU is a 3x leveraged ETF of the biotech sector and I mentioned in Sunday’s letter that a hold of the 21EMA "could be a low-risk spot to start a position in a potential leading sector with stops just below $8.” It did hold the 21EMA, but I elected to buy the normal biotech ETF (XBI) instead as it presented lower risk. That buy is up 4.5%. Both charts below:
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!
Funko (FNKO) has made some stellar moves over the past few years and I really like the way it’s setting up here, holding the 21EMA and flashing new highs in relative strength. I’m watching for a high-volume breakout of the trendline around $24.50-$25 with stops $1 lower.
Enphase Energy (ENPH) was the big winner today after reporting earnings 30% above expectations, totaling 109% year over year growth in EPS and 68% in revenue. It gapped up and ran on excellent volume. It’s too extended now so we’ll have to wait for a consolidation. What this stock does next might be a good indicator for the overall market - will it hold the gap and move higher, or quickly fade the gains?
Vermillion Energy (VET) broke out above a 5-month flat base and held the support test today. Volume has been low, which makes it tough to buy, but I’m watching for an above-average volume move above today’s high for a potential buy.
Photronics (PLAB) broke out of a small bull-flag pattern within a double-bottom W base on good volume, and is showing leadership characteristics. The relative strength line on the top of the chart is soaring higher. Watching this one to set up again for another buy point.
That’s all for tonight! See you back here on Wednesday night for an update on our stocks.