Ivanhoff Capital

The charts on Momentum Monday are powered by MarketSmith

The euphoria we saw the previous week was quickly replaced by cautiousness and outright fear. The best buying opportunities in a bull markets are after a multi-day pullback. We just got one. There is always a chance that a minor 4-5% pullback is followed by something unexpected that turns the pullback into a full-blown 10-20% correction but the odds for the latter are slim.

There are four major warning signs in the current tape:

1. The major index ETFs are not trading below their declining 20-day EMAs. In addition, their 10-day EMA is about to cross below their 20-day EMA.
2. Some of the major companies have given up their earnings gaps after strong reports – AAPL, FB, even GOOGL. AMZN gapped down and kept going down which is unusual. In a strong bull markets, such downside gaps are usually quickly bought.
3. The momentum leaders are starting to crack. Some are already below their 50-day moving averages. Others were hit hard after their last earnings reports. Thirds cannot hold their earnings gap. Momentum stocks are leaders for a reason. They lead on the way up and are the first ones to break out after a correction. They are often among the first ones to break down before a market correction. The last time, the major indexes had a 5-10 pullback was in May. During that time, many momentum stocks just went sideways and build a new base above their 50-day moving average. That wasn’t the case in October 2018 when many broke below their 200-day moving average.
4. The trade war between the U.S. and China seems to be escalating. The Chinese Yuan is at 10-year lows against the U.S. Dollar.

P.S. Check out my last two trading books. Both are super practical, packed with actionable information that can be put to use right away:

Swing Trading with options – How to Trade Big Trends for Big Profits

Top 10 Trading Setups – How to find them, how to trade them, how to make money with them.

The charts on Momentum Monday are powered by MarketSmith

The earnings season is still young but the results so far have been mostly positive. Strong reports have led to high-volume breakouts. Softer reports have been relatively few and the market reaction to them has been muted. 

Facebook, Google, Snapchat, and Twitter reported record quarters which is a direct testament of the health of the advertising industry and an indirect indicator of the confidence of the rest of the business world.

The semiconductor index, SMH after going through a 20% drawdown in May and a 30% drawdown in late 2018. The curious thing is that it has achieved this milestone with NVDA still 40% below its all-time highs and Intel basically going sideways for the past 18 months. 

The small-cap index, Russell 2000 (IWM) has finally starting to wake up from deep slumber. 160 has been a major area of resistance for most of 2019. Closing above 160 might spur a major FOMO chasing later this year.

The dip in software momentum names are still welcomed as buying opportunities. Take Atlasian (TEAM) for example. It pulled back to its 50dma, where it immediately found buyers and it broke out to new all-time highs after their last earnings report. Many of the software names have started to break out before their earnings report which is a clear sign of high and rising market expectations. The latter could be a double-edged sword because higher expectations are harder to meet. The good news for the bulls is that we are in a market that is willing to forgive minor weaknesses in earnings reports.

P.S. Check out my last two trading books. Both are super practical, packed with actionable information that can be put to use right away:

Swing Trading with options – How to Trade Big Trends for Big Profits

Top 10 Trading Setups – How to find them, how to trade them, how to make money with them.