Momentum Monday – The Dips Continue To Get Bought

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Dip buyers continue to dominate the tape. The tech sector is leading again. Enterprise software, semiconductors, the FANGs are all looking strong, breaking out or setting up for a potential breakout.

Emerging markets are also starting to wake up. We are seeing notable relative strength in India, select Brazil and Chinese names. It’s usually good news when the more sectors join the market rally.

We continue to trade in a market of stocks environment, where stock picking matters.

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

Five Stocks With Big Earnings Surprises

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Stocks that receive favorable market reaction after reporting big earnings surprises tend to keep going higher in strong bull markets. Some recent examples include MELI, IONS, ZS, and TNDM.

A favorable market reaction is a high-volume range expansion to new 50-day high – a gain of at least 5% on at least 2x the average daily volume.

Here are some stocks that went up immediately after their earnings report after beating estimates by a wide margin that might be setting up for another leg higher:

EXEL broke out from an eight-week base.

GKOS pulled back all the way to its 50-day moving average where it bounced and now it is setting up again for a potential breakout.

DXCM didn’t gap up after their big earnings surprise but managed to consolidate in a tight range near its all-time highs and it is now setting up for a potential breakout.

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

Momentum Monday – Looking for Relative Strength

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The major U.S. stock indexes pulled back from areas of major resistance. $280 for SPY, 175 for QQQ, and 160 for IWM (Russell 2000). Is this the beginning of a significant leg lower or just another garden-variety shallow correction. Judging by the price action in many momentum stocks, it looks more like the latter.

Momentum stocks are often leading the market, higher and lower. If the market declines and most momentum names go sideways or even try to break out, the correction is most likely a buying opportunity. This is exactly what are seeing in the current market.

Keep in mind that no indicator has a 100% success rate. If some unexpected news comes out of nowhere and surprises the market, those same momentum stocks will get hit hard and will fall with the rest of the market. This is why I am using the expression “most likely” – it’s a probability, not a certainty.

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