Momentum Monday – Range-bound Trading

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Bull markets correct through sector rotation. Earlier last week, we saw large-cap stocks (especially tech) perking up alongside the U.S. Treasuries while most of the rest of the market was under pressure. Supposedly, the market was/is worried about the various Covid mutations. 

Some of those fears are justified. Parts of the world that don’t have sufficient access to vaccines have already entered full lockdowns and there’s still a large number of people in the U.S. and Europe who don’t want to get vaccinated. We know that vaccines work and are the fastest way to stop the spreading of the virus so it’s just a matter of time needed for the manufacturing and distribution of doses, smart marketing, and proper incentives to solve the problem. In the meantime, the stock market might remain choppy and very reactive to any news on the subject as we saw last week – first with the announcement of no viewers in the Olympics in Japan which led to a market selloff, and then with the CDC latest guidelines suggesting that vaccinated school kids don’t need to wear masks indoor which led to a bounce on Friday.

In the meantime, dips continue to get bought but breakouts have not been following through as of late which is a clear sign of a range-bound market. This is a typical price action for the beginning of a new earnings season which starts next week with financials reporting. It’s normal for the indexes to chop around while digesting new information. The good news is that every earnings season gives birth to at least several new powerful trends and I doubt this one will be an exception so we will be watching closely.

In terms of setups ready to go, quite a few software stocks have formed a cup-with-handle pattern and are setting up for a potential breakout. Keep in mind that If interest rates spike again, those breakouts are likely to fail. If you play them, be sure to be nimble: ZS, CRWD, FIVN, TEAM, HUBS, SHOP, TWLO, OKTA, etc.

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