The market rally continued to close the month up on double-digit gains, as many market participants were expecting a move lower and thus there are high levels of cash on the sideline to deploy. This is an excellent sign, and last week any distribution was quickly met with a frenzy of buy activity.

The indexes and many stocks are short-term extended, so we will need to wait for a consolidation to see if the buying momentum can continue to the upside. Hopefully this gives a chance for stocks to tighten up and set up low-risk buy points, which has proved very hard to find in the recent whipsaw trading. Solar has quickly emerged as a leader with the sector closing up a whopping 30.6% on the week on news of stellar earnings and clean-energy government initiatives. That’s outstanding strength. Needless to say, I’ll be watching for pullbacks and not chasing anything here.

Tonight I’ll cover updates on stocks that have gone through buy points and moved higher including FNKO up 5%, TH up 10%, and more leaders setting up.

Index Update

The Nasdaq is above the rising 21EMA with net highs/lows positive. The McClellan Oscillator is running very hot at 182, which is a sign of serious strength, but it indicates that markets definitely need to rest and consolidate a bit. I’d be cautious buying before a reset of this indicator back to lower levels.

The Nasdaq cleared through a few resistance areas without much of an issue, but is coming up on what should be a fairly tough spot. The 21EMA is above the 50MA, which is now curling up. Volume has been just average in this index. I’m watching for a bit of a consolidation so the moving averages can catch up to price, and it’ll be important to watch how individual leaders act when this occurs.

The S&P-500 has similarly cleared through resistance areas, but volume is looking better on this index with three straight days of increasing, above-average volume. This is great to see, but a tough resistance zone is coming up and high volume will need to continue to push through it. I’d rather see a rest of the rising moving averages first.

Stock Updates

Funko (FNKO) broke out past the $24.50-$25 but point on Thursday and closed up about 5% on Friday with a good follow-through. Move stops up to even.

Target Hospitality (TH) is up 10% from the first buy point where I noted to take some profit while moving stops up to even. It’s now consolidating again, where I would consider adding on a high-volume move through $14.10 with stops at $13.50.

Vermillion Energy (VET) broke out above a 5-month flat base and held the support test, and then it continued on up over 10% higher. Above-average volume never came in, which is not always essential for big moves in commodity stocks. I missed this one, so moving on.

XBI is the biotech sector ETF which held the 21EMA for a low-risk spot to start a position in a potential leading sector. I stopped out on Friday with stops in profit, though it’s still holding the moving average for now.

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 enter and taking profits, and always use a stop-loss!

Aehr Test Systems (AEHR) is setting up a nice little bull-flag here after a high volume move 2 weeks ago. It printed an inside-day on Friday, presenting a solid risk-reward on a break of $11.53 with stops just below $11. I’d prefer to see a few more days of rest on any index weakness before breaking out.

Enphase Energy (ENPH) was a massive winner last week with excellent earnings numbers and industry news. It’s the bonafide leader in solar, but it’s far too extended to buy in this area. I’m watching this one closely to build out a better buy point over the next few weeks. We’ll see if it comes down to test the gap around $260.

Photronics (PLAB) broke out of a small bull-flag pattern within a double-bottom W base on good volume, and is showing leadership characteristics. Watching this one to set up again for another buy point.

Note: I am traveling most of the week so there will not be an issue on Wednesday, but I will post setups to Twitter when I can. As an early heads up, I will be out for two weeks in August 13-27 for my wedding!

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

Cheers,

Danny Deals