Momentum Monday – The Bulls Are Still Alive

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There was an interim trade deal with China on Friday. I am sure this is not the end of the soap opera but for now it is enough for the market to rally. Obviously, the candle on Friday is not particularly bullish if it is followed by more relentless selling on Monday but we are certainly seeing an improvement in price action and market breadth. The large-cap market indexes are back above their 50-day moving averages. The 52-week high list is growing and it is not dominated by REITs and defensive stocks only. On the contrary, we are seeing various sectors represented – semiconductors, electronic equipment, biotech, software, service, retailers, restaurants. The Fed is expanding its balance sheet again and companies are buying back their shares at near record levels. All those factors might be enough to improve market sentiment and lead to higher prices. And when it comes to price action, higher prices have the uncanny ability to attract sidelined cash.

Keep in mind that the next earnings season starts next week with a bunch of financials scheduled to report. As always, earnings season will create many new trends and will provide an additional clue about the current market sentiment – there’s no better measure of risk appetite than the market reaction to earnings.

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Three Highly-Shorted Stocks Near Their 52-week Highs – IIPR, TREE, and JKS

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A large short interest and a 52-week high can be an explosive combination. Any share that has ever been sold short will eventually be covered. It can be covered voluntarily as the short sellers are taking profits or it can be covered involuntarily as short sellers are forced to cover losses.

Here are three stocks trading near their 52-week highs while more than 20% of their float is short:

IIPR – cannabis-related REIT

TREE – lending services

JKS – solar panels

Bonus: ZM and BYND raised earnings estimates and are trading near their all-time highs while having a large short interest. In addition, both of them are recent IPOs, which means they have a relatively small float. This is an explosive combination. Both are candidates for a short squeeze on Friday.

P.S. Check out my last two trading books. Both 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, hot to trade them, hot to make money with them.

Momentum Monday – The Bears Are Still In Charge

The charts on Momentum Monday are powered by MarketSmith

The month of May wasn’t kind to equities. No matter how you slice it, the market doesn’t like protectionist policies and it is likely to keep going lower until all the tariff insanity is put to rest.

SPY closed below its 200-day moving average. The next level of potential support is near 270. The 200dma and 280 are now levels of potential resistance.

The small-cap index, IWM continues to show relative weakness. If it loses 145, it is likely to drop to 140 before dip buyers and short coverers step up. The most dangerous condition in the market is when an index is oversold near an area of potential support and it doesn’t bounce from there. This is a recipe for panic selling.

P.S. Check out my last two trading books. Both 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, hot to trade them, hot to make money with them.