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The charts on Momentum Monday are powered by MarketSmith

The small-cap ETF Russell 2000 – IWM is setting up for a potential breakout near 160. There’s a chance it will try to catch up with the large-cap ETFs, SPY and QQQ which have been making new all-time highs for three weeks in a row.

The biotech sector continues to be on fire. For a third Friday in a row, IBB went up more than 1.5%. The smaller-cap biotech ETF, XBI is also setting up for a potential breakout.

Biotech is not the only healthcare sector that has been hot in the market. There are quite a few medical devices stocks that are breaking out or setting up for a potential breakout: ISRG, INSP, GMED, NVCR, etc.

The market continues to show its affinity to semiconductor stocks. Those that crushed estimates this earnings season, gapped to new 52-week highs and followed through higher. Those that missed estimates and initially pulled back have managed to bounce back for the most part.

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The charts on Momentum Monday are powered by MarketSmith

You know it is a bull market when you sell a few positions for decent gains and they keep going higher. The bulls (the optimists) are fully in charge right now. This doesn’t mean that the indexes won’t pull back. They will. It just means that when they will, dip buyers are likely to show up and defend the important technical areas. Look at the price action in the small-cap index Russell 2000 for example. It ran to 160, which has been a notable resistance. It pulled back from there only to find strong support right where it had to: 158. Now it will probably spend some time in a tight range between 157-160 before it is ready for another potential breakout later in the year.

Semiconductors continue to be the obvious price leaders in this tape. SMH will probably try to consolidate in a range while its rising 10 and 20-day moving averages catch up with it. In the meantime, there are still some good long setups in the sector: KEYS, MRVL, OLED, IPHI, TER, AMD, NVDA, etc.

The biotech sector is in a raging mode. For two Fridays in a row we saw some heavy buying in the sector. There are so many breakouts, both in stocks near their 52-week highs and in stocks far from their 52-week highs: MRTX, BGNE, IOVA, NVRO, NVCR, INCY, ALXN, AMGN, etc.

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The charts on Momentum Monday are powered by MarketSmith

It is a bull market out there but the bullishness is not equally distributed. This is why we call bull market stock-picker’s markets. Three industries are in favor at the moment – biotech, homebuilders, and semis (5G related). This can change next week and other industries might step up and shine but as of right now these are your leaders.

Bull markets often correct through sector rotation. While QQQ and SPY keep making new all-time highs, there are still quite a few stocks that are struggling – take a stroll in the retail universe and you might be surprised how much relative weakness there is: NKE, RH, LULU, MCD, CMG, SHAK, etc.

We saw some crazy earnings-related moves last week: PINS tested their IPO price at 19 where it bounced. ANET was completely obliterated after substantially reducing revenue guidance. MELI and ETSY took a hit – in a matter of a few months they turned from market leaders to several market laggards. FB and BABA could not muster a rally despite strong earnings reports. On the other side, we saw strong earnings breakouts in semiconductors and building-related stocks. Overall, there is a mixed message from the reactions to earnings reports. My thesis is that many stocks will continue to chop in a range under the end of earnings season and after that we will see them break out and sustaining an uptrend. 

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