The Next Market Leaders - 9/28
Markets resolved to the upside today, failing to push lower despite high sell volume during the past few days. I noted in my morning note that things were “ripe for a rally” with the market having been down 6 days in a row and indicators reading as deeply oversold.
Today’s action feels like nothing more than a short-covering bounce, as the weakest names bounced the highest and the action in leaders was uninspiring. The indexes are still well below all of the declining key moving averages. There may be a few more days of green, but I’m not rushing to get long…yet. This seems more like a break in the selling than a bottom. Let’s see if I’m proven wrong.
Tonight I’ll cover a few setups that could be worth trying out if this rally is able to sustain over the next few days. I’d look to take profits very quickly on the long side given the wild volatility and proclivity of markets to move back down with the trend. Let’s get into it!
Note: The next issue will be sent out on Monday night as I am traveling for the weekend.
Index Update
The Nasdaq is still well below the falling 21EMA, but burst up today through the falling short-term moving averages. That’s a good first step, but I’d like price remain above these MAs long enough for them to turn up so the indicator can go green. Net highs and lows are still down while the McClellan is slightly less oversold at -104, but still oversold, so there’s room for a bigger move.
The Nasdaq traded back above the resistance line after coming close to testing year-to-date lows. It’s not surprising to see a bit of a bounce after 6 days straight of selling. The real test will be the 21EMA in blue if it’s able to make it that far. Watch for a follow-through-day (booming up-day on higher volume than the day before) as soon as tomorrow.
The S&P-500 tested the year-to-date low yesterday and held it successfully. It remains squarely within the resistance and support areas, and well below the falling moving averages.
Stock Updates
No updates today as there were no new setups in Sunday’s issue.
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!
First Solar (FSLR) held the 21EMA very nicely on yet another new high in relative strength and is still consolidating below the breakout area after an ~80% move. The solar sector isn’t looking as good as it was, but regardless, I’m watching this one for a strong move through $140 if the indexes are holding up.
H&R Block (HRB) held the 50-day moving average and printed another new high in relative strength today while moving up through the previous $44 support area. The buy point is move through $46 with stops at $44.50, provided the rally in the indexes continues.
Cardinal Health (CAH) has been showing relative strength for weeks and broke out through the descending trendline today after the market pressure lifted. Watching to see how it develops over the next few weeks. I would consider buying on a breakout to all-time highs at $72 with heavy volume.
Digi International (DGII) held the 50-day moving averages and moved back up through the 21-day exponential moving average today. It’s within the flat base pattern and relative strength moved to new highs before price. The buy point is a high-volume move through $36, but preferably after some consolidation so there’s a better stop.
Rivian Automotive (RIVN) is a potential short-sell after building out a 5-month bear flag pattern. Watch to see if the moving averages work as resistance just above the price here. I’d consider shorting on a bear breakdown below the ascending trendline near $33 with buy stops at $34.
That’s all for tonight! See you back here on Monday night for an update on our stocks.