Momentum Monday – Bear Flags Everywhere. What’s Next?

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As active market participants, we need to be prepared for different market scenarios. Here are the two most logical developments for the rest of the year:

$260 is the line in the sand for the S&P 500. It has been tested numerous times this year. Buyers have consistently stepped up to defend it. If SPY loses it, we will likely see another quick leg lower and 260 is likely to become a level of resistance. Since correlations between stocks are extremely high during corrections, no sector can really be a safe place.

The bullish short-term scenario is 260 holds and the market rallies on some type of unexpected news. Another variation of this scenario is an intraday break of 260 to lure short-sellers and then a strong rally and a close above it. If this happens, the two types of stocks that you would want to own on the long side are:

  1. The ones that have held the best so far – enterprise software stocks like AYX, WDAY, OKTA, SPLK, TWLO, etc.
  2. The ones that have been hit the worst – Chinese ADRs, high-momentum stocks that have correct 40-50% from their recent all-time highs like GRUB.

On this Momentum Monday, we also discussed the impact of the stock market on the economy and most specifically AAPL and LULU.

Check out my latest book: Swing Trading with Options – How to trade big trends for big profits.

Another Gap Down. Enterprise Software Stocks Shine

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The major U.S. stock indexes opened with another gap this morning. Most stocks are off their lows, but this is hardly a reason to get excited.

The small-cap index, Russell 2000 broke below its October lows. The good news is that market breadth didn’t confirm the new lows. Plenty of stocks are holding a lot better than the market averages.

Enterprise software stocks stood out today and are shaping out to be the new old leaders.

OKTA beat estimates and guided higher. It opened near its 50dma and it recovered quickly. It was among the first stocks to not only go green but also trade above its Tuesday’s highs.

Last week, we saw SPLK and WDAY gapping up on stronger than expected earnings results. Both of them have consolidated through time (sideways) while the overall market has fallen. This is a notable relative strength.

MDB is trading at new all-time highs. New all-time highs! While the rest of the market is in disarray.

ZS bounced hard from its 50-day moving average and it is up 12% today.

Overall, things are not as bleak as the news outlets are trying to make them. There’s notable strength among individual stocks.

Check out my latest book: Swing Trading with Options – How to trade big trends for big returns.

Momentum Monday – Do You Chase the Rally or Wait for a Pullback?

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There are two catalysts going for the bulls right now:
1) A potential trade deal between the U.S. and China.
2) The Fed becoming more neutral and pausing the interest rate increase.

The trade deal has been kicked down the road. The Fed will likely not hike again in December. The market has already priced in those events. If the market’s thesis is not confirmed by reality, we might see another leg lower.

In the meantime, growth stocks are gapping up this morning. Many of them had a substantial move in the past few days, so some form of profit taking is normal. The big question here is if dip buyers will step up and buy that pullback ferociously. There’s is a decent chance for a fear-of-missing-out-year-end chase. $280 is the line in the sand for the SPY – the line that divides greed and fear. Buyers are higher, sellers are lower.

In today’s Momentum Monday, we went over MSFT, CSCO, AMGN, EXAS, V, SPY, QQQ, TSLA, MDB, SHOP, OKTA, CROX, GOOS, UBNT, etc.

Check out my latest book: Swing Trading with Options – How to trade big trends for big profits.

Momentum Monday – Potential Counter-trend Rally?

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The major U.S. stock indexes are still in a downtrend. There’s no doubt about that. And yet, there are some signs of an impending short-term counter-trend rally. Market breadth is improving. More and more stocks are setting up near their 10-day exponential moving average.

We covered the catalysts and the technical setups in a few dozen stocks and ETFs TWLO, OKTA, LULU, SPY, QQQ, XBI, UBNT, EXAS, VCEL, AAPL, SMH, NVDA, XLNX, etc.

Check out my latest book: Swing Trading with Options – How to trade big trends for big profits.

Momentum Monday – Lower Highs and Lower Lows

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The market correction continues in full force. Many momentum darlings are already down 20%, 30%, even 50% from their 52-week highs reached earlier this year. People often forget that momentum stocks are the best trading vehicles in both rising and falling markets. In a bull market, the typical momentum stock can deliver 10-20x the return that the S&P 500 does. In a corrective market, the same stock can easily underperform the general market by 4-5x. This is why every active trader should have a short strategy for weak markets. Every active investor should have an exit strategy to minimize drawdowns during corrections.

Check out my latest book: Swing Trading with Options – How to trade big trends for big profits.