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The charts on Momentum Monday are powered by MarketSmith

Appetite comes with eating. The greed and risk-on behavior comes with higher prices. We saw another week of epic short squeezes. Tesla (TSLA) has come within 7 points from the proverbial $420 “going-private” level that Elon Musk joked about on Twitter last year. Shopify (SHOP) is back near its all-time highs after a 30% drawdown and a test of its 200-day moving average just a month ago. Analysts waited for Nvidia (NVDA) to go up 15% in two weeks to start upgrading it confirming the popular Wall Street saying that “you don’t need analysts in a bull market and you don’t want them in a bear market”. Even Netflix (NFLX) had a big rally and it gained 10% in a week. It is now above its 200-day moving average and back near potential resistance.

The one thing many forget about bull markets is that not all stocks go up at the same time and there are constant sector rotation. Individual stocks can easily have a 30% drawdown in a bull market while the indexes remain in a range and go up. Be  careful what you chase and if you do it, have an exit strategy.

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The charts on Momentum Monday are powered by MarketSmith

The Fed kept the overnight interest rate the same and confirmed its accommodative policy. There was nothing surprising in Fed’s statement and yet, the U.S. stock indexes rallied. Bull markets are looking for the slightest reason to rise; just like bear markets tend to sell off on any news. The reason is simple – any news can be interpreted as both good and bad. In rising markets, almost everything is accepted as being positive; in falling markets, almost everything is accepted as being negative. Gerald Loeb said it best: “the market is better at predicting the news than the news is at predicting the market”.

Semiconductors led the market higher before the trade negotiations with China ended. It was the market’s way of betting that there will be some form of a deal. At this point, the semiconductor ETF – SMH is a bit extended and most likely due for some form of consolidation – through time (going sideways) or price (pulling back to its rising 10 or 20-day EMA).

In the meantime, dip buyers continue to scoop up even the slightest pullbacks in the biotech sector. While it is true that stocks like ACAD have had a sizable decline in the past week, most biotech stocks are still in a strong uptrend. RETA, for example, is a new addition to the Momentum 50 list and it is looking ready to test its 52-week highs near 220.

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The charts on Momentum Monday are powered by MarketSmith

The best buying opportunities in bull markets happen after a pullback but buying that pullback is easy only in hindsight, especially if it is the one like we had last week. It was a volatile week, during which the major U.S. stock indexes (SPY, QQQ, IWM) went below their 20-day moving averages only to bounce sharply and finish near new 52-week highs. 

Not all sectors bounced equally. With a few minor exceptions, we saw relative weakness in software names. So many sold off after their latest earnings report. SHOP went against that trend and after a big drop on Monday, staged an impressive 60-point rally. It continues to look constructively. Maybe, only MSFT, SPLK, and DOCU are looking better but both are a bit extended from their bases. Most of the other software leaders are actually looking vulnerable to further downside, especially considering the tax loss harvesting that happens at the end of the year – TEAM, MDB, OKTA, etc.

Biotech is still the undisputed leader. Quite a few of the biotech stocks are extended and yet they keep going higher, mainly due to short squeezing and rumors of potential acquisitions.

Consumer discretionary stocks shined on Friday after another much better than expected jobs report. SBUX has returned to the Momentum 50 list. I like how it found support near its rising 200-day moving average and it close strong above its 50-day moving  average on Friday. $87 is the next technical hurdle and if it is cleared, it is going to 90.

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Here’s a Google spreadsheet tracking all closed option and stock ideas shared on my private Twitter stream and weekly email for subscribers.