The market is still in a correction mode but plenty of stocks have had a good year. As of December 15, there are 62 that have more than doubled. If you study their charts, you will notice how the majority of them started their move with a huge-volume breakout to new 50-day highs.
We see quite a few enterprise software names on the list, which only comes to remind us to always pay attention to industry relative strength. It is a lot more sustainable catalyst than just company’s earnings: TWLO, TTD, OKTA, MDB, AYX, COUP. Most of these names continue to be among the strongest stocks currently in the market and are likely to outperform if the general market bounces.
There are also a few cannabis related stocks, which was one of the hottest industries in 2018: TLRY, NBEV.
As usual, the list is dominated by biotech, healthcare and medical research names which account for almost half of the big 2018 winners.
There are a couple turnaround stories in the retail space – CROX and FOSL. There were a lot cannabis-related earlier in the year, but the correction in the last two months has caused a lot of damage to the sector.
While the S&P 500 is down 11.2% from its 52-week highs, the 2018 Doubles are down on average 24.3% from their 52-week highs. Most of them offer multiple great long trading opportunities during their ascent. Now, quite a few of them are setting up on the short side. Some examples to consider: WWE, REGI, SSTI, AMRN,
As active market participants, we need to be prepared for different market scenarios. Here are the two most logical developments for the rest of the year:
$260 is the line in the sand for the S&P 500. It has been tested numerous times this year. Buyers have consistently stepped up to defend it. If SPY loses it, we will likely see another quick leg lower and 260 is likely to become a level of resistance. Since correlations between stocks are extremely high during corrections, no sector can really be a safe place.
The bullish short-term scenario is 260 holds and the market rallies on some type of unexpected news. Another variation of this scenario is an intraday break of 260 to lure short-sellers and then a strong rally and a close above it. If this happens, the two types of stocks that you would want to own on the long side are:
The ones that have held the best so far – enterprise software stocks like AYX, WDAY, OKTA, SPLK, TWLO, etc.
The ones that have been hit the worst – Chinese ADRs, high-momentum stocks that have correct 40-50% from their recent all-time highs like GRUB.
On this Momentum Monday, we also discussed the impact of the stock market on the economy and most specifically AAPL and LULU.
The major U.S. stock indexes opened with another gap this morning. Most stocks are off their lows, but this is hardly a reason to get excited.
The small-cap index, Russell 2000 broke below its October lows. The good news is that market breadth didn’t confirm the new lows. Plenty of stocks are holding a lot better than the market averages.
Enterprise software stocks stood out today and are shaping out to be the new old leaders.
OKTA beat estimates and guided higher. It opened near its 50dma and it recovered quickly. It was among the first stocks to not only go green but also trade above its Tuesday’s highs.
Last week, we saw SPLK and WDAY gapping up on stronger than expected earnings results. Both of them have consolidated through time (sideways) while the overall market has fallen. This is a notable relative strength.
MDB is trading at new all-time highs. New all-time highs! While the rest of the market is in disarray.
ZS bounced hard from its 50-day moving average and it is up 12% today.
Overall, things are not as bleak as the news outlets are trying to make them. There’s notable strength among individual stocks.
All charts on Momentum Monday are powered by MarketSmith
There are two catalysts going for the bulls right now:
1) A potential trade deal between the U.S. and China.
2) The Fed becoming more neutral and pausing the interest rate increase.
The trade deal has been kicked down the road. The Fed will likely not hike again in December. The market has already priced in those events. If the market’s thesis is not confirmed by reality, we might see another leg lower.
In the meantime, growth stocks are gapping up this morning. Many of them had a substantial move in the past few days, so some form of profit taking is normal. The big question here is if dip buyers will step up and buy that pullback ferociously. There’s is a decent chance for a fear-of-missing-out-year-end chase. $280 is the line in the sand for the SPY – the line that divides greed and fear. Buyers are higher, sellers are lower.
In today’s Momentum Monday, we went over MSFT, CSCO, AMGN, EXAS, V, SPY, QQQ, TSLA, MDB, SHOP, OKTA, CROX, GOOS, UBNT, etc.
MDB is consolidating near all-time highs. A break above 85 might trigger a bigger upside move. 80 is a decent stop level for a short-term trade. Keep in mind that most breakouts have failed in the past couple of months, so you should not overstay your welcome. Be nimble and take partial profits quickly. I’d sell half at 90 which represents 1x risk, a quarter at 95 which would be a return of 2x risk and let the rest ride until it closes below its 10-day EMA.
It’s always good to have several scenarios for a stock, especially in this market environment where the wind changes on a daily basis. If MDB clears 85 but it fails quickly and closes below 85, it can probably be shorted for a move to 75 (especially if the major stock indexes are breaking down as well).
The problem with MDB is that they report earnings on December 4th, so none of the above mentioned scenarios will have enough time to play out.
SHOP has been a wild horse in the past couple of months. Trending stocks tend to acknowledge their 50 or 10-day moving averages (stay above them while in an uptrend and below them while in a downtrend). This hasn’t been the case with SHOP, which has been languishing between 120 and 150 for quick some time.
A break of 151.60 can potentially push SHOP to 165 in a short-term perspective. If that breakout fails and SHOP goes below 143, it can be shorted until 125.