Momentum Monday – Growth Leaders Still Under Pressure

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Most breakouts are still not working well. On the contrary, we continue to see quite a few failed breakouts that lead to quick moves lower. High-momentum stocks seem to be targeted one by one. A few weeks ago, we talked about SHOP and ROKU standing tall in an ocean of red. Since then, they were demolished. Last weekend, we talked about CVNA holding above its 50dma but starting to crack – it dropped 22% this week. 

The price leaders have been typically defensive, high-yield stocks like utilities, consumer staples, REITs. Also building materials and homebuilders. Maybe this is just another rotation in an ongoing bull market. Maybe, it is more than that and we will see the major U.S. stock indexes drop below their 50-day moving averages. All I know is that the majority of long setups I took in the past month failed and almost every single short setup I took (via put options) has worked really well. Until that trend changes, there is no need to be aggressive on the long side. 

There is no need to guess when a better trading environment for long setups will return. The future momentum leaders will break out ahead of the indexes. We will see breakouts starting to follow through and pullbacks bouncing. 

P.S. Check out my trading books. They are super practical, packed with actionable information that can be put to use right away:

Swing Trading with options – How to Trade Big Trends for Big Profits

Top 10 Trading Setups – How to find them, how to trade them, how to make money with them.

The 5 Secrets To Highly Profitable Swing Trading

Momentum Monday – Still A Market of Stocks

The charts on Momentum Monday are powered by MarketSmith

Despite the mostly negative news-stream, SPY and QQQ are still hovering near all-time highs. Typically, the market averages are lagging individual stocks and at the beginning of a new bull market, we tend to see plenty of stocks break out ahead of the averages – these are the future momentum leaders in the making. There is a serious lack of new leaders in the making currently. We continue to see mostly non-inspiring breakouts that seem to be lacking the energy to move higher. I highly doubt that homebuilders, banks, and gold miners can really lead the market higher. We discuss some interesting setups in medical devices stocks and opine on the future of Netflix.

P.S. Check out my trading books. They are super practical, packed with actionable information that can be put to use right away:

Swing Trading with options – How to Trade Big Trends for Big Profits

Top 10 Trading Setups – How to find them, how to trade them, how to make money with them.

The 5 Secrets To Highly Profitable Swing Trading

Momentum Monday – Wild Market of Stocks

The charts on Momentum Monday are powered by MarketSmith

Small caps had a huge week. Russell 2000 (IWM) gained 5%. It is back above its 50 and 200-day moving averages and near the technically important 160 level. Will it stay in a range or it will break free. This is the big question.

What is different about this rally is that it has been led by lagging sectors – financials, retail, etc. In the meantime, many momentum stocks took a sizeable haircut. When I say momentum stocks, I don’t refer just to software which has been in disarray for a few weeks now. Even stocks like CMG, CME, V, and MA took a hit – granted their pullbacks are just minor blips when viewed from a 10,000 foot view but nevertheless, they have shown notable relative weakness in a strong market.

To sum things up – it seems someone flipped a switch and we saw an algo-related move from momentum to laggards.The weakest performers of the past year went up 20-30% while the strongest lost as much.

I don’t know if I am looking at the wrong stocks (and I am basically looking at all of them), but I see more bearish than bullish setups which is weird with the major indexes near all-time highs. If this is the beginning of a new leg higher, we should be seeing more stocks breaking out to new 52-week highs from proper bases. Maybe this time is different? By all means, either the indexes will catch up with the momentum stocks or the momentum stocks will catch up with the indexes.

P.S. Check out my trading books. They are super practical, packed with actionable information that can be put to use right away:

Swing Trading with options – How to Trade Big Trends for Big Profits

Top 10 Trading Setups – How to find them, how to trade them, how to make money with them.

The 5 Secrets To Highly Profitable Swing Trading