U.S. stocks continue to climb a wall of worry. SPY is already up 20% from the Christmas lows and is quickly approaching $280, which has been a major area of technical resistance in the past year.
While tech stocks are taking a little break after a strong run in the first few weeks of the year, we are starting to see quite a few other sectors breaking out and setting up – biotech, healthcare, transportation, energy, financials. Things are almost too good to be true.
December retail sales came at -1.2%, which is the worst drop in nine years. The market didn’t care much. Dip buyers stepped up and bought the dip in many technology, energy, and healthcare stocks. Positive reaction to bad news is a sign of confidence and optimism. Sentiment and momentum are what matter the most to traders because the market is a voting machine in the short-term.
Here are three stocks in a tight range contraction, which might lead to a breakout and another leg higher:
Unsurprisingly, the first test of SPY’s and QQQ’s 200-day moving averages has led to a slight pullback, but under the surface, we continue to see predominantly positive market action. The market is reacting favourably to earnings reports. Dip buyers are still eager to scoop pullbacks in strong momentum stocks.
In today’s Momentum Monday, we went over some setups in enterprise software, cybersecurity, communication devices, medical instruments, biotech, aerospace.
SPY and QQQ had a minor pullback once they reached their 200-day moving averages, but under the surface we continue to see mostly positive price action. Dip buyers continue to be firmly in charge. Momentum stocks are still breaking out and holding their earnings gaps.
Here are a few anticipation setups for next week in stocks with very high relative strength: NOW, GHDX, AMRN, BHVN, etc.
Correlations are decreasing, volatility is declining, the market reaction to earnings has been predominantly positive, corrections are happening via sector rotation. In other words, the U.S. stock market is back to a normalized trading environment, where stock picking matters.
Enterprise software and cannabis-related stocks continue to lead the market higher. We discuss a potential rotation into other sectors ahead. Biotech and medical devices are couple industries that are setting up.