The charts on Momentum Monday are powered by MarketSmith
What a volatile week! It started with a big gap down and a 4% drop in SPY and QQQ. Then, we saw a quick recovery and basically, the major U.S. equity indexes finished flat for the week. In the meantime, quite a few of the momentum leaders are already back to new all-time highs – some after reporting strong earnings; others – after quickly recovering from a dip to their 50 or 200-day moving averages. In other words, dip buyers are still dominating the tape.
Last week, we also saw a good number of earnings breakouts to new 52-week highs – mainly in highly shorted stocks with controversial fundamentals, which tend to attract short sellers. The shorts were obliterated: MTCH, SEDG, GH, CVNA, SHAK, ROKU,NTRA, MELI, WK, etc. A price trend can continue longer than many short sellers can remain solvent. It is one skill to know when a company is potentially extremely overvalued or undervalued and it is a completely different skill to know when to enter and when to exit a position.
Keep in mind that the U.S./China trading negotiations are still in a stalemate and the relationship between the two countries can go even more sour due to Hong Kong. There’s still plenty of scared money out there – U.S. Treasuries and gold closed near the highs for their weekly range and near 52-week highs.
SPY and QQQ found some resistance near their declining 20-day EMAs on Friday, which was to be expected after the big bounce in the middle of the week. Actually, Friday was an inside day (its range was within the range of the previous day), which is bullish considering the recent run up. Closing above the 20-day EMA will put the foundations for testing the recent highs near 300. As we mentioned already, some individual stocks have already made new all-time highs and momentum names tend to lead the stock market. Given the current macro picture, I think the best case scenario for the S&P 500 is a range bound price action for the foreseeable future. If SPY loses 290 next week, it is likely to go to 280. SPY might be stuck between 300 and 280 for awhile.
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