Momentum Stocks Are Great Leading Indicators

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I pay close attention to the action in momentum stocks. They are called market leaders for a good reason. This is what I tweeted yesterday:

Keep a list of leading momentum stocks and watch how they act. Many of them are likely to get hit just before the market indexes’ selloff accelerates. You can create your own list of momentum stocks by scanning for the top performers on a 6 and 12-month time frames or you can take a shortcut and use established lists like the SL50 from MarketWisdom.com and IBD50 from Investors.com. A list of momentum stocks is a great source of long trading ideas during rising markets, it is a great leading indicator for both rallies and selloffs, and it is a great source of short trading ideas during corrections because most momentum stocks take a hard hit during general market declines.

From a big picture perspective, nothing has changed. All major U.S. stock indexes are still in an uptrend. Dip buyers are likely to step up around $180 for the Nasdaq 100 (QQQ). The sustainability of that potential bounce will largely depend on the price action in individual momentum names, because as I mentioned earlier – they tend to lead on the way up and on the way down.

Momentum Monday – The Comeback of Biotech?

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The bull market continues to rage with full force. Apple has been unstoppable after its earnings gap and it’s already a 1.1-trillion-dollar company. It is looking extended to chase here. Amazon is less than 2% away from becoming the next trillion-dollar company.

We continue to see strength in enterprise software, semiconductors, cybersecurity, retailers, and more recently – biotech. After quadrupling between 2012 and 2015, the biotech ETF, IBB has spent the last four years building a new base and it is not too far from making new all-time highs. The smaller-cap biotech ETF, XBI has already passed that milestone. The renewed interest in marijuana stocks has brought new life to the whole biotech sector. It might remain in play for a long time.

Endo International Might Be Setting Up for Another Leg Higher

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The most recent rotation has benefited the healthcare sector, so it’s rational to turn our attention to some setups in the space. I am already long ENDP, mainly because of the constructive technical action. The market loved their last earnings report. While earnings and sales growth continue to be negative, both numbers came above analysts’ estimates. More importantly, the stock gapped up and finished near the highs of its earnings day’s range. ENDP spent the following few weeks consolidating in a tight range and consistently finding buyers near $15. It looks like it ready for another leg higher as it has been perking up along with many other biotechs this week.

Looking at areas of potential technical resistance, a short-term target of $19-20 is reasonable. A move below $15 would invalidate my thesis.