Keep an Eye on MOMO

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The owner of Tinder, MTCH has been on a tear ever since it crushed earnings estimates on August 7th. Almost 50% of its float was short at the time, which certainly contributed to the quick price appreciation in the past month. I wrote about the potential for a short squeeze here.

Now, the so-called “Tinder of China”, MOMO might offer a similar opportunity. MOMO had a 40% correction this summer along with many other Chinese stocks. It the past few weeks, it has managed to recover above its 50-day moving average, where it is setting up again. If it manages to break out above $48, it has a good chance to test its all-time high near $55. A lot will depend on how the U.S. – China trade negotiations go.

Momentum Monday – Still A Market of Stocks

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While Chinese stocks are in a crash mode, we continue to see strength in the U.S. stock market. Last week’s pullback in momentum names seems like another normal pullback within a bull market. They say that bull markets correct through sector rotation. This is exactly what we might be seeing currently in the market as the transportation sector broke out today. There are some many truckers clearing long bases: ECHO, ARCB, XPO, etc.

The cannabis craze has revitalized the interest in many biotechs. Today, we saw a major breakout in a large-cap stock like AMGN. Institutions are looking for a side door to participate in the growth of the cannabis industry and stocks like AMGN and TPB are perking up.

We also took a look at NDAQ, CMG, MCD, SBUX, AVAV, ROKU, etc.

Momentum Stocks Are Great Leading Indicators

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I pay close attention to the action in momentum stocks. They are called market leaders for a good reason. This is what I tweeted yesterday:

Keep a list of leading momentum stocks and watch how they act. Many of them are likely to get hit just before the market indexes’ selloff accelerates. You can create your own list of momentum stocks by scanning for the top performers on a 6 and 12-month time frames or you can take a shortcut and use established lists like the SL50 from MarketWisdom.com and IBD50 from Investors.com. A list of momentum stocks is a great source of long trading ideas during rising markets, it is a great leading indicator for both rallies and selloffs, and it is a great source of short trading ideas during corrections because most momentum stocks take a hard hit during general market declines.

From a big picture perspective, nothing has changed. All major U.S. stock indexes are still in an uptrend. Dip buyers are likely to step up around $180 for the Nasdaq 100 (QQQ). The sustainability of that potential bounce will largely depend on the price action in individual momentum names, because as I mentioned earlier – they tend to lead on the way up and on the way down.