Momentum Monday – Improving Price Action

MarketSmith powers the charts in this video

I don’t remember the last time the Fed chairman spoke and the market didn’t tank. Turns out Powell is seeing and acknowledging the same thing the market is – inflation might be slowing down so there are enough reasons to slow down the pace of hikes as soon as December. The market liked what it heard and staged a massive rally on Wednesday. 

The S&P 500 is less than 2% from its 50-week MA, which has been a major resistance during the correction this year. Going and starting to trade above it would be a significant event from a technical and psychological point of view. Obviously, we are not there yet and this bounce might turn out to be just another shorting opportunity, especially if the Fed is hawkish during its last FOMC meeting for the year on December 14. What matters right now is that we see more stocks from various industries break out and set up for potential breakouts. The dip buyers seem in control. Even the strong payroll report last Friday was insufficient to stop the bull run. 

Here are a few industry themes that are currently standing out:

Solar stocks continue to show notable relative strength. ENPH tested its 10 and 20-day EMAs multiple times in the past few weeks, only to finally break out on Friday. If it doesn’t fail next week, other solar stocks are likely to join the rally – SEDG, SPWR, RUN, ARRY, etc.

The sentiment towards Chinese stocks might have changed. All the news about protests in China and Chinese ADRs have been gapping up almost every day last week. It could be just a temporary short squeeze or the foundation for something bigger. The Chinese tech ETF, KWEB is back above its 50-week moving average for the first time since April 2021.

Speaking of 50-week moving averages, the biotech ETF $XBI  is finally back above it. This is an important indicator of risk appetite and can have significant implications for fear of missing out in December. Some biotechs to keep an eye on: AXSM, PRTA, MRTX, VRTX, REGN, NBIX, AMLX, HRMY, HALO, etc. 

One of the factors that might cool the market enthusiasm down is the potential escalation of the war in Ukraine. The market is expecting that something might happen as defense stocks broke out across the board on Friday – BA, LMT, NOC, etc. Steel names have been rising too – STLD, NUE, X.

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Disclaimer: Everything I share is for educational and informational purposes only and it should not be considered financial advice.