The End of FAANG
Strength under the hood
The Market:
What a week and a change of character from the market. Let’s rewind towards the end of 2021, the mega cap tech stocks AAPL 0.00%↑ AMZN 0.00%↑ GOOGL 0.00%↑ MSFT 0.00%↑ marched higher leading the indexes to new highs while many smaller and growth stocks had topped months before. Fast forward to today and we have the opposite, the mega cap stocks (except for AAPL) have all been destroyed on their latest earnings reports and are making fresh lows while smaller and growth stocks are holding up much better and forming actionable patterns.
The Nasdaq and the S&P, much like the rally in June to August, are starting to form a structure of making higher highs and higher lows. The Nasdaq on Friday pushed through the 21 ema as the S&P similarly pushed through the 50-day moving average. We also continue to see breadth improve and we now have a 3-day streak of net new highs on the Nasdaq and 4 days on the NYSE composite.
While the indexes are pushing higher, the declining US dollar and falling yields will ultimately set the stage for this rally. The dollar lost support of a trendline and fell below its 50-day moving average for the first time since August.  The 2-year yield has also retreated from recent highs and now sits on its 21 ema. The FED is expected to raise rates another .75 basis points next week; and Jerome Powell’s press conference will be scrutinized for any hints of slowing the pace of future hikes.
Despite the bullish action in the indexes, with a follow through day, net new highs and many individual stocks acting well, it is imperative to increase exposure carefully and methodically and not rush in. It is still a volatile market with many stocks making large daily swings and stopping out any late buyers chasing breakouts.
Secondary Indicators:
Put Call Ratio: Neutral reading at 0.93
Percent of Stocks above the 50 day: Nasdaq - 55% S&P – 63%
Percent of Stock above the 200 day: Nasdaq - 37% S&P - 37%
Looking Ahead to Next Week:
Next week all eyes will be on the FED and Chairman Powell. A .75% basis point hike is widely expected, but the tone and what is said in the press conference will be more important than the interest rate decision itself. Friday also sees the unemployment rate and nonfarm payroll numbers; these will be watched carefully to see if the FED’s hikes have been working or not. An increase in the unemployment rate while bad for the economy would most likely be seen as a positive for the markets.
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Current Portfolio:
(Avg. Price, 1st Purchase Date, Stop Loss)
DV 0.00%↑ ($28.82, 10/24/22, $27.35)
DV saw a week of massive volume and volatile price action. Tuesday saw a breakout of the flat base on enormous volume only to see price slam back down 12% from its peak down into the 21 ema. Despite the volatility, this one continues to act well and closed above the weekly downtrend line.
ENPH 0.00%↑ ($294.00, 10/26/22, $278.25)
ENPH posted another monster quarter and reacted positively. The stock gapped up above all moving averages on monster volume. This continues to base and now is working up the right side of a potential cup base. On watch to form a handle.
XMTR 0.00%↑ ($57.25, 10/24/22, $54.11)
XMTR continues to consolidate after a very nice advance. This is now 5 weeks into a base and acts very well after finding support at the 50 day and 10 week moving averages.
YELP 0.00%↑ ($36.45, 10/17/22, $35.00)
YELP continues to act very strong showing tight controlled action. While it formed a double bottom base, it added a handle and created an inverse head and shoulders pattern. Price pushed above the left side high of the base, before coming back in and now is consolidating near the 8 ema right below the left side high.
Actions taken:
Bought: DV, ENPH, XMTR
Sold: QQQ
Potential Leaders:
AEHR, AMN, CCRN, DV, DY, ENPH, FOUR, LPLA, SRPT, SWAV, WWE, YELP
Additions: ENPH
Removed: CMG, WOLF
https://www.tradingview.com/watchlists/84325802/
Actionable Ideas:
Stocks listed in the actionable buys are stocks with strong fundamentals and showing good technical action that can offer a low-risk entry. Not every entry will trigger, but also just because a stock is listed here does trigger does not mean I will take the trade. Portfolio exposure, market health and other factors will also be considered.
Most of the ideas listed this week are pullback buys. While we do have bullish underpinnings, I still do not want to chase breakouts to avoid whipsaw like we saw with SWAV this week. From the breakout the stock dropped 17% very quickly shaking out anyone who chased that breakout.
AEHR 0.00%↑ – Failed Breakout Pullback - ~ $18.50
AEHR broke out from a cup base with strong volume. This is now a candidate for a failed breakout pullback to the 21 since it broke above the left side high of the base. Ideally this will come down on light volume, however with the strength this has been showing of late it is possible that it doesn’t trigger this entry.
DY 0.00%↑ – Failed Breakout Pullback - ~ $111.50
DY broke the left side high a cup base with the relative strength line making new highs. This is now a candidate for a failed breakout pullback to the 21.
XMTR 0.00%↑ – Multitouch Trendline - $61.63
XMTR is now 5 weeks into a new base and has formed a very nice multitouch trendline. A push through the trendline is actionable, ideally volume will swell as it pushes.
YELP 0.00%↑ – Failed Breakout Pullback - ~ $37.25
After breaking out from its double bottom base, YELP pushed above the left side high of the base and is now a candidate for a failed breakout pullback to the 21 ema. The 21 is now slightly above the double bottom pivot.
References
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The content presented is for informational and educational purposes only. Nothing contained in this newsletter should be construed as financial advice or a recommendation to buy or sell any security. Please do your own due diligence or contact a licensed financial advisor as participating in the financial markets involves risk.