December retail sales came at -1.2%, which is the worst drop in nine years. The market didn’t care much. Dip buyers stepped up and bought the dip in many technology, energy, and healthcare stocks. Positive reaction to bad news is a sign of confidence and optimism. Sentiment and momentum are what matter the most to traders because the market is a voting machine in the short-term.
Here are three stocks in a tight range contraction, which might lead to a breakout and another leg higher:
I am continuing my weekly habit to post some interesting swing trade setups among the strongest stocks currently in the market. I look at the strongest 1-2% stocks. This means stocks having a relative strength rating of 99 or 98. I am interested in two major setups: a breakout, which I can buy intraday or an anticipation setup, which I can potentially buy the next day if it clears new 3-day high.
Here are a few anticipation setups for next week: GKOS, RARX, INSP, VCEL, and FN. As you can see, biotech stocks are dominating.
When SPY broke below its 260-280 box two weeks ago, it entered into a downward spiral and quickly dropped to the low 230s. Few were prepared for a 10% fall in seven trading days. The oversold bounce came a bit later than expected by most but it was a powerful one. Those who bought the extreme weakness too early, are very motivated to sell when their break-even levels are reached. This is why bear markets characterize with monster rallies followed by powerful reversals.
SPY has most likely entered into another box and we will see range-bound trading in the next few weeks. That range could be 240 to 260, or 230 to 250. The smartest way to approach the new box is to play the ranges and stay away from breakouts and breakdowns because most of them are likely to fail on longer time frames.
In the last Momentum Monday for 2018, we covered enterprise software stocks like OKTA, TEAM, and WDAY; the coming competition between DIS and NFLX; the price action in SPY, AAPL, and others.
The IPO market is gradually coming back. After the huge run-ups in ACIA and TWLO, more companies are eager to go public. We may not be too far from seeing a really big fish filing for an IPO – Snapchat or Uber.
Based on current price action, the market is eager for new IPOs. Taking into account that all new companies offer only 10 to 20% of their float and thousands of funds compete to own a limited number of shares, it is not a big surprise that IPOs are a favorite trading vehicle for many traders.
Here are a few names that I am watching: NTNX, COTV, NH, PI, TPIC, LN, PTI, YRD, AVXS, AIRG, FLGT, etc.
Profits in the stock market can usually be made faster by selling stocks short than by buying them. The reason is that price declines are usually much steeper than price rises, which occur more gradually, over a longer period of time, and are usually accompanied by a healthy amount of pessimism that gradually lessens the longer the price rise continues. Price declines, on the other hand, contain an element of panic that increases as stock prices plunge lower.