Weekly Update: The Next Leaders Emerge from the Market Rubble
In our live Alpha Stocks session this past Monday, I pointed out that stocks were severely oversold and I was looking for a short-term bounce.
Stocks rose as expected during the following week, but as I write this on Friday morning, the rally seems fairly unimpressive.
The S&P 500 is up roughly 4% from last week’s close, but we have not seen aggressive buying volume.
We managed to avoid any new 90% down volume days, but we did not see a 90% up volume day either…
That’s a sign I am waiting for to signal that buyers might be returning.
The number of stocks making new lows continues to outpace the ones making new highs as well.
While it was good to see the ratio shrinking last week, a healthy market will have stocks breaking out to new highs and fewer names undercutting prior lows.
Unfortunately for the bulls, it has been over two weeks since we have seen a day with net new highs.
Showing Promise
That being said, a few groups of stocks are starting to show promise.
It is vitally important to watch which stocks are making highs when the market is making lows.
This is usually the next group of market leaders that can advance several hundred percent once the next bull market begins.
Chemical, shipping and energy stocks were the clear leaders in 2022. But their reign quickly came to an end.
Over the last two weeks, the Energy Select Sector SPDR Fund (XLE) is down 23%.
Shipping stocks like ZIM Integrated Shipping Services Ltd. (ZIM), Star Bulk Carriers Corp. (SBLK), Genco Shipping & Trading Limited (GNK) and Grindrod Shipping Holdings Ltd. (GRIN) have fallen 25%-30% each.
And Dow Inc. (DOW) has wiped out all of its 2022 gains in just three weeks.
So… who are the new leaders?
Bullish Biotechs
So far, the new leaders all seem to be biotechnology companies. The SPDR S&P Biotech ETF (XBI) rose over 12% last week.
And stocks like Meridian Bioscience, Inc. (VIVO), Chinook Therapeutics, Inc. (KDNY), Immunocore Holdings plc (IMCR), Allogene Therapeutics, Inc. (ALLO) and Vertex Pharmaceuticals Incorporated (VRTX) are all showing a lot of strength on increasing volume.
The increase in volume is a crucial distinction that is often overlooked by amateur traders.
We want to see heavy buying from large institutions as they are building up positions. And volume is the secret footprint that reveals this activity.
I am also seeing strength in several solar energy stocks. Daqo New Energy Corp. (DQ), Enphase Energy, Inc. (ENPH), SolarEdge Technologies, Inc. (SEDG), JinkoSolar Holding Co., Ltd. (JKS) and a few others are beginning to set up as potential buys.
The general market, however, is still in no-man’s land. It has not yet shown enough strength to start heavily buying.
The indexes are also too far extended to safely enter a good short position.
Therefore, risk-averse traders might consider sitting out for the week until the market shows where it wants to go.
The Nasdaq index, represented below by the Invesco QQQ Trust (QQQ), is beginning to tighten up and coil before making its next move.
Which direction the market moves next remains to be seen, but I have enough confidence in this week’s Watchlist ideas to bring them to you today.
You’ll find two new long ideas and one new short idea added to the Watchlist below…
Chinook Therapeutics, Inc. (Long Idea)
Chinook Therapeutics, Inc. (KDNY) is a biotech stock coming out of a two-year base pattern.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my Stealth System…
- Surge score: 97/100
- % Above 52-wk low: 79%
- Sales growth: +671%
- Return on Equity: N/A
- Triple momentum: yes
The company has three drugs in its development pipeline, one of which is in Stage 3 clinical trials.
Good news from that trial could deliver a big surge in the share price.
KDNY has seen several weeks of big volume on its move to the highs. Consider buying the breakout with an 8% stop.
Immunocore Holdings plc (Long Idea)
Immunocore Holdings plc (IMCR) is another biotechnology stock showing a lot of strength.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my Stealth System…
- Surge score: 96/100
- % Above 52-wk low: 102%
- Sales growth: +159%
- Return on Equity: N/A
- Triple momentum: yes
IMCR just completed a beautiful base pattern with volatility compressing as pullbacks shallowed from left to right – exactly the kind of price action we like to see.
Consider buying this stock here around the $37 mark with an 8% stop loss.
ZIM Integrated Shipping Services Ltd. (Short Idea)
I added ZIM Integrated Shipping Services Ltd. (ZIM) to the Watchlist as a short last week, and it is finally hitting the entry trigger.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my Stealth System…
- Surge score: 90/100
- % Above 52-wk low: 96%
- Sales growth: +113%
- Return on Equity: 191%
- Triple momentum: no
The stock was a market leader in 2022 as marine shipping companies have been able to charge insane rates due to slowdowns in the supply chain.
Earnings surged roughly 10-fold after the pandemic and the stock has done the same.
But President Biden basically declared war on ZIM and the other handful of companies that control the bulk of cargo shipments from overseas thanks to what the White House believes is “price gouging.”
After an 803% move higher in 2021 and early 2022, ZIM has finally started rolling over.
Shares have seen heavy selling volume over the last few weeks, and the stock is now resting on its 200-day moving average for the first time ever.
I would consider selling ZIM short with a buy stop at $52 for protection.
Did You Miss the Big Reveal?
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If not, you need to check the encore presentation right here!
Anthony revealed the exact “1% trading blueprint” he used to go from working day and night as an auto mechanic…
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Live Coaching Session
Monday, at 3:00 p.m. EDT, we’ll be hosting our regular weekly coaching session for Stealth Trades.
We’ll send you a login reminder that morning, just so you don’t forget.
We’ll cover all of our new stocks on the Watchlist as well as the rest of the stocks inside Stealth Trades.
You need to attend this session to get the most from your subscription!
In the meantime, you can watch the replay of our latest Stealth Trades session right here.
Best wishes for your trading,
Ross Givens
Editor, Stealth Trades
P.S. Were you able to join my colleague and expert trader Anthony Speciale for the unveiling of Project 6×6 and his brand-new trading service, Part Time Profits?
If not, you need to check the encore presentation right here!
