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.

Five High-Relative-strength Stocks That Crushed Earnings Estimates

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SPY and QQQ have recently pierced below 270 and 165 – levels that were considered important to hold. In addition, one of the best-holding sectors (the last bastion of hope) – retail, has been crushed in the past couple of days. The market mood is grim. The price range in the major U.S. stock indexes has contracted today. Market breadth is starting to improve. These are the exact conditions that might lead to a short-term bounce.

There are two types of stocks that tend to outperform everything else during market bounces:
1) The ones that got hit the worst (biotech).
2) The ones that held the best.

Here are five stocks that have recently beat earnings estimates and are showing notable relative strength (they went sideways or up while the market was declining): CDNA, VNDA, TWLO, AYX, DATA.

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