Weekend Note- 6/25/2022
Biotech and China have the attention, but what is next?
Summary and Key Focus List
Full chart deck can be found here
So we have some positive traction in our accounts, now what?
Major Market Themes- Interest rates and Inflation. After big week and follow through day, indexes running into supply zone and resistance. Does Biotech and China have what it takes to lead? Should you play strong names near highs or growth coming off the bottom after being beaten down? Or both?
Patience early in week to see how markets and key names digest big up week as we run into overhead supply. Look to add to exposure in beaten down growth names ( DLO GTLB SFLT GLBE PDD SHOP etc) while adding to leaders (Biotech & China and select ETFs IGV XBI KWEB)
Be ready to cut bait and run if things reverse hard. This is the time to practice progressive exposure and only add more if things are working.
*NOTE- There are some great looking IPO growth stocks making strong moves off the bottom. I have a separate note to tackle those. (Part 2 of “ With A Soft or Hard Landing, Are Growth Stocks About to Take Off?)
CRDO LNTH EVH DLTR NOC AZPN ABBV UTHR VHI KRO
Review of Previous Week Note and Trades
Coming into last week, our focus was on areas that did not make new lows as the indexes did. Specifically Biotech names- UTHR SIGA VRTX LEGN - they all acted great and allowed us to get positioned, hopefully you did too. KWEB also held up strong and many China related names are starting to enter stage 2 uptrends and should be watched closely. Beaten down growth stocks are starting to act very well ( will talk about these more later). Copper had a beautiful breakdown that we played via spreads and options to the downside (still have runners).
New Open Trades
It was a somewhat busy week. We got positioned in XBI IGV KWEB VRTX UTHR HALO and now have cushion on all of them. We also started picking up small amounts of some select growth names. We added BABA GLBE PDD and SHOP to start. These are very small positions that we want to keep adding to while also selecting additional names to put in this section of our portfolio if they continue to work. The name of the game right now is progressive exposure. Keep adding if its working, cut it fast if its not.
Hopefully you were able to add some positive action to your account. If not, it is still very early and we have plenty of time.
Take it away Ed Carson from IBD:
“The stock market rally attempt delivered big weekly gains in a short week, the major indexes closing Friday at their best levels. The Dow Jones Industrial Average leapt 5.4% in last week's stock market trading. The S&P 500 index gained 6.5%. The Nasdaq composite surged 7.5%. The small-cap Russell 2000 jumped 6%. The 10-year Treasury yield fell 11 basis points to 3.12%, rebounding from just above 3% at Thursday's lows. U.S. crude oil futures dipped 0.3% to $104.27 a barrel last week, rebounding 3.2% on Friday. Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) vaulted 18.25% last week and ARK Genomics ETF (ARKG) 18.1%, both moving above their 50-day line. Tesla stock remains a top holding across Ark Invest's ETFs.”
You will see lots of people online selling services touting their picks from last week. The fact is the rally was not surprising. Playing it in a way that allowed progress in your account was a little more difficult. I don’t tout my winners (especially in a week when the averages bounced hard). That is for people trying to cause FOMO in you and take your money. I don’t charge, never will, and only doing this to help clarify my thoughts and have some fun. Choose your informational inputs wisely.
We bounced. Now what? Growth ETF’s and major indexes cut their distance from their 50 simple moving averages by about half from last week. The “easy money” from the bounce is now over. We are about to hit symmetrical resistance where previous rallies have failed, a declining 50 day moving average, and we closed above the previous lows of last month, giving lots of traders a signal to get long. I wrote about how a pop higher could be triggered by just simply knowing where the crowed feels comfortable.
Investors.com (IBD) changed their market outlook to confirmed uptrend. I wrote about this here. There is nothing confirmed about this uptrend. We did log a follow through day on the indexes, and this one does feel different regarding how growth stocks are acting and leadership starting to stand out. But we are not in an uptrend, do not kid yourselves. Progressive exposure is key. Add more risk if it keeps working and we actually get a confirmed uptrend in price. Expect back and fill and be ready to cut positions quick if they fail. This market is guilty until proven innocent.
Many groups are acting just like the broad indexes while a few are starting to act differently. Lets take a look:
XLV ITA- Put in a nice undercut and rally and are back into their bases.
IBB- Ended above the 50 day simple last week and above the key resistance level highlighted on the daily. Now needs to clear the weekly DTL, put in a higher low, and we are in business. This is an area we have been focused on.
IGV- Software put in strong bounce off pre-covid highs and trying for trend reversal. Needs to break DTL but this is a group you should be watching closely.
URA CARZ- Trying to hold important weekly levels
KWEB- Broke out of mini wedge last week and putting in series of higher lows. Select names in group look very strong.
Discount Stores (G5331 - in marketsmith) GO is the leader of the group with DG having a strong week. OLLI is on the move off the bottom while DLTR is actually setting up a buyable pivot.
In a strong group that broke out of wedge last week, Dollar Tree is trying to break the pivot around 158ish and its DTL to move higher. In the chart deck you can see fund ownership increasing with three key funds increasing or starting positions last quarter, a major positive. Grocery Outlet is the leader in the group. Olli looks interesting also.
As noted above, the ITA (aerospace and defense ETF) put in a undercut and rally last week. Northrop Grumman held strong and has a pivot forming at 463.
Not wanting to chase, but not wanting to miss this recent IPO showing strong RS and great earnings estimates, watching how it acts around the 13 dollar level. One that I want to get a start position in.
EVH is a bit sloppy, and we dont know how much of the move Friday was due to the Russell rebalancing. However, strong growth, solid 98 composite rating and move over the pivot and strong close has me watching closely. Another one I want to get on board.
ABBV doesn’t have the growth that I like, but with a classic double bottom and break of the DTL it is rapidly approaching the pivot buy around 157. With key fund ownership increasing, keep an eye on this one.
I would also take a look at VHI bouncing off the 50 day, AZPN holding up very well, and LNTH not breaking down and trying to build out its base.
Hopefully you added some exposure last week. As I finish this up on Monday morning, futures are slightly higher. A setup I don’t like to chase and you don’t have to. Especially if you already have some exposure on, sit back and lets see how the markets digest last weeks action, how our open trades act, and if any of our key names trigger. FOMO is a choice. So is ruthlessly following your trade plan.
We have about an hour before the bell rings, do you know what you will do ?
Good luck and as always, thanks for reading!