Just when we thought the craziness had finally come to an end, Tuesday’s CPI numbers showed that inflation was still rising, despite the market’s belief that it had in fact peaked.
The result was a bloodbath like we haven’t seen in years.
The Nasdaq fell 5.5% in a day. And the Dow lost 1276 points.
Even our trade in MCK is rolling over. Luckily, we sold half near the highs and raised our stop to breakeven on the rest (see why risk management is so crucial?).
Monthly Chart of McKesson Corporation (MCK) – Source: TradingView
This week, all the major indexes fell back to a crucial support level shown below in white on the QQQ.
Monthly Chart of Invesco QQQ Trust (QQQ) – Source: TradingView
This has been a battleground for stocks since June, so it’s not surprising that this is where the selling finally stopped.
But make no mistake… This is where the rubber meets the road.
As of Friday afternoon, sellers were winning the battle and support was not holding.
Disclosure: I took a short position in QQQ on Thursday with a tight stop above Wednesday’s high.
The Put/Call Ratio has also surged to 1.18.
I expect to see it hit at least 1.40 before this market finds a bottom, so I’m expecting things to get worse before they get better.
Remember that things can change quickly and that works in both directions.
In June, only 13% above stocks were above their respective 50-day moving average.
By August that number was up to 80%… and it’s now back down to 36%.
The only standout this week has been solar…
If there was ever any doubt that solar was leading the market, Tuesday put that to rest.
Top solar names like EnphaseEnergy (ENPH), First Solar (FSLR) and Sunrun (RUN) all went UP on Tuesday!
And in case you haven’t been paying attention, here’s how those stocks have performed since the June lows:
So, it shouldn’t surprise you the two stocks on my watchlist this week are solar names.
Here are the details…
Invesco Solar ETF (TAN)
I’ve been making my case on solar for months, so I won’t waste my breath explaining why I like the sector.
TAN broke out from a textbook breakout pattern in July and climbed 22% in just two weeks – a huge move for a basket of roughly 40 stocks.
It is now forming another base with resistance near $89.
If TAN can get above there, I am expecting another quick move higher.
Altus Power (AMPS)
AMPS is somewhat of an under-the-radar solar stock.
Unlike most solar companies which make panels, chips, or mounting systems for customer-owned solar energy systems, Altus is an electric utility company whose power comes exclusively from solar generation.
It owns and operates a network of solar farms and sells the power to end users.
I haven’t dug into all the details yet, but I imagine large companies are buying power from them just for the energy credits and whatever tax incentives are currently up for grabs.
With a market capitalization of just under $2 billion, it is a small-cap stock.
AMP is coming out of a cup with handle pattern that began late last year, and the 200-day moving average is finally starting to rise.
This looks like the early stages of a new Stage 2 uptrend which is exactly where I like to buy.
As I write this on Friday morning, the Nasdaq is up roughly 2% for the week.
The S&P 500 recorded four positive days in a row to start the week, and we are beginning to see signs of institutional buying.
Thursday was an 88% up-volume day, meaning 88% of the volume was on the advance.
I’ve been waiting for a 90% up-day to signal that the low is in, and this was darn close…
Daily Chart of S&P 500 Index with Market Breadth & Volume Indicators – Source: TradingView
The same areas of the market I have been highlighting over the last few weeks continue to show strength – mainly biotechnology and solar stocks.
If you took the trade in Chinook Therapeutics, Inc. (KDNY) from last week’s Stealth Trades Watchlist, you should have seen a nice quick gain as the stock surged 13% in just four days.
Alpha Stocks members took the trade and already locked in partial profits.
Stay Cautious
Make no mistake – The market is not out of the woods yet, and this may end up being nothing more than a tradeable rally.
But I have started to increase exposure in my personal account.
If I see decent gains in these pilot positions, I will continue to buy news setups and increase my size accordingly.
Now, take a look at the daily chart of the Invesco QQQ Trust (QQQ) below, which tracks the Nasdaq index…
Daily Chart of Invesco QQQ Trust (QQQ) – Source: TradingView
This week’s positive action prevented the index from making another lower low.
Should it take out the previous week’s high, this downtrend could finally break.
Join Me on Monday
Oil, natural gas, copper and most other commodities have fallen sharply over the last few weeks.
This is potentially a good sign for stocks as it could be a signal that inflation is finally subsiding.
As an investor, it is important to separate the economy from the stock market.
Remember… The market is a discounting mechanism. All assumptions about the macroeconomic picture are largely already priced in.
The market will bottom as soon as signs point to conditions improving. But it typically takes many months or even years before a recession ends.
With that in mind, I hope you’ll join me on Monday afternoon for our Stealth Trades Live Class at 3:00 p.m. ET…
I’m going to be outlining our plan for dealing with a market environment like this, and we’ll take a look at our Watchlist stocks and other potential ideas in more detail.
For now, we are indeed in a tradeable rally, and I have three new long trades to share with you this week…
Sierra Wireless, Inc. (Long Idea)
Sierra Wireless, Inc. (SWIR) is a Canadian designer of wireless and embedded modules, gateways and routers.
Computer networking stocks are not showing strength as a group, but SWIR has a Surge Score of 99/100.
In other words, it is outperforming 99% of stocks.
Earnings and sales were both up big last quarter, and analysts are calling for further growth through 2023.
Daily Chart of Sierra Wireless, Inc. (SWIR) – Source: TradingView
Surge score: 99/100
% Above 52-wk low: 86%
Sales growth: +60%
Return on Equity: N/A
Triple momentum: yes
The chart looks great as well. The up/down volume ratio is incredibly bullish at 1.86, and institutional buyers are flocking to the stock.
SWIR has formed a pivot at the $25 level.
In a perfect world, it would trade sideways here for a few days to absorb any sellers near the highs.
That would make it an even higher conviction buy for me.
But demand for this stock is high. Consider buying on new highs with a 10% stop.
Seagen Inc. (Long Idea)
Seagen Inc. (SGEN) is a biotech that has come ripping off the lows.
Shares are up 70% in just six weeks, with almost no pullbacks along the way.
Daily Chart of Seagen Inc. (SGEN) – Source: TradingView
Surge score: 96/100
% Above 52-wk low: 71%
Sales growth: +28%
Return on Equity: N/A
Triple momentum: yes
At this point, price has been consolidating for almost two weeks near the $180 level.
There is also a fundamental catalyst in play…
Reuters reported that Merck & Co., Inc. (MRK) is in advanced talks to buy Seagen at a price above $200 per share – more than 10% above where it trades today.
Consider buying SGEN above $182 with a stop at $167.
United Therapeutics Corporation (Long Idea)
United Therapeutics Corporation (UTHR) is another biotech stock showing tremendous strength as the general market is coming off its lows.
The stock is just entering Stage 2 and currently trades just 1% off its all-time high.
Price action is tightening, pullbacks are becoming shallow and volume dried up for several days.
This is exactly what we want to see pre-breakout…
Daily Chart of United Therapeutics Corporation (UTHR) – Source: TradingView
Surge score: 97/100
% Above 52-wk low: 51%
Sales growth: +22%
Return on Equity: 20%
Triple momentum: no
The fundamentals are also strong… Unlike many biotech stocks, which have limited revenue and negative earnings, United Therapeutics is showing solid growth in both areas.
Earnings and sales grew by 44% and 22%, respectively, in the most recent quarter.
This stock is a potential market leader that could make a large advance if the market has indeed found the bottom.
Consider buying UTHR here with a stop at $220.
One Last Chance to Join Alpha Stocks
If you’ve been struggling in this wild stock market environment, with the major indexes down double-digits and many of last year’s leading stocks down over 50%…
Consider checking out my Alpha Stocks trading service, which focuses on only the very best stock trading opportunities — both on the long side as stocks rise and on the short side when markets are crashing.
Alpha Stocks recently recorded a 21.6% gain on the downside in only eight days as Pegasystems Inc. (PEGA) stock plunged…
As well as a gain of 21.3% in just 15 days in Permian Basin Royalty Trust (PBT).
Last Wednesday, we closed another winner in ProPhase Labs, Inc. (PRPH) for a two-day gain of 5.8%.
And as I alluded to above, we just closed out another two-day winner on a third of Chinook Therapeutics, Inc. (KDNY) for a gain of 8.4%.
Of course, we also hold a live members-only session every Monday so that subscribers can ask questions and get guidance about our trades.
As I write this on Friday afternoon, the Nasdaq is down 5.6% for the week.
As expected, the recent short-term bounce was a great opportunity to take a few short trades from better entry points.
And if you took the short trade idea in ZIM Integrated Shipping Services Ltd. (ZIM) last week, you are sitting on a hefty profit.
The market failed to post a follow-through day or 90% up volume day last week – key signs I’m waiting for to signal the market may have found the bottom.
We are still seeing more stocks making new lows than new highs. And breakouts to the upside are still meeting selling and mostly reversing lower.
Roundtrip Market
As a trader, this can be extremely frustrating.
For example, here’s a trade we took in my Alpha Stocks service this week…
65-Minute Chart of ProPhase Labs, Inc. (PRPH) – Source: TradingView
We bought ProPhase Labs, Inc. (PRPH) on the breakout at $11.97 per share. The next day, we were up over 17%.
As prudent traders, we took profits on part of the position at the top and raised our stop to breakeven.
That turned out to be the right move, as the stock reversed all the way back over the next two days.
We got out with a nice average gain, but unless you are using very wide stops (which I do not recommend) and taking on a lot of risk, this environment is making it very difficult to hold onto stocks for longer-term moves.
The Big Picture
So, let’s take a step back and look at the big picture…
I’ve found the easiest way to “remove the noise” is to look at a weekly chart rather than a daily or hourly chart.
Weekly Chart of Invesco QQQ Trust (QQQ) – Source: TradingView
The Nasdaq has been unable to get above its 50-day moving average for several months. Even the 200-day has rolled up and is now pointing down.
We have also seen several weeks of high-volume selling, which is a sign that institutions have been dumping stocks en masse.
Until that changes and we begin to see signs of meaningful buying, there is no reason to be aggressively buying or having much exposure.
My personal account has been primarily in cash since November.
I continue to make short-term trades and take small positions here and there, but I have not been more than 25% invested at any point this year.
This is how I have been able to keep drawdowns to a minimum.
Progressive Exposure
I don’t have a crystal ball. Like everyone else, I cannot predict bear markets.
But I do understand “progressive exposure.” It works like this…
Look at your last four to five trades. Did you make money?
If not, cut your trading size in half.
After the next five trades, look at your results. Did you make money?
If not, cut your trade size in half again. If you did, bump it up.
It’s not rocket science. But it’s a powerful technique for minimizing drawdowns and keeping your losses small.
When your trades are not working, you will be trading very small amounts of money and taking very small losses.
When trades are working, you will be trading very large size and therefore having big wins.
Join Me on Monday
If you got into trouble this year and suffered a big drawdown, don’t beat yourself up.
The best money managers in the world have lost billions this year. Tiger Global, one of the top hedge funds in the world, is down by half.
The important thing is to learn from your mistakes. Take the lesson and move on.
With that in mind, I hope you’ll join me on Monday afternoon at 3:00 p.m. ET for our live Stealth Trades session…
I’m going to be outlining our plan for dealing with a market environment like this.
We’ll talk about inflation and how it is impacting the markets we track, and we’ll take a look at our Watchlist stocks and other potential ideas in more detail.
Now, we’re focused on making money in the second half of the year, so here are three trade ideas for this week’s Watchlist to kick off the new quarter and the second half of 2022…
Chinook Therapeutics, Inc. (Long Idea)
I added Chinook Therapeutics, Inc. (KDNY) to the Watchlist last week, and it did not rise enough to hit our buy trigger.
As I mentioned in the previous update, KDNY is a biotech stock coming out of a huge two-year base pattern.
Daily Chart of Chinook Therapeutics, Inc. (KDNY) – Source: TradingView
Surge score: 97/100
% Above 52-wk low: 79%
Sales growth: +671%
Return on Equity: N/A
Triple momentum: yes
This week saw the stock pull back slightly to the 21-day moving average.
This is also a previous breakout level that could hold as support.
Traders could buy the stock here and use a 10% stop below the 50-day moving average.
The Howard Hughes Corporation (Short Idea)
The Howard Hughes Corporation (HHC) stock has been decimated over the last couple of months.
Shares of the real estate developer and manager fell from $105 to a low around $60 in just two months…
Daily Chart of The Howard Hughes Corporation (HHC) – Source: TradingView
Surge score: 26/100
% Above 52-wk low: 105%
Sales growth: +N/A
Return on Equity: N2%
Triple momentum: yes (short)
Shares are seeing a short-term bounce to the 21-day line that should continue to act as resistance.
Consider selling HHC short here near the $70 mark.
Citigroup Inc. (Short Idea)
When looking for breakout stocks to buy, I want the best of the best… Stocks with big earnings growth, big sales growth, bullish forecasts and high relative strength.
Identifying names about to break out lower means we want the opposite… Declining sales and profits, poor relative strength and a clear downtrend on the chart.
Citigroup Inc. (C)checks every box…
Daily Chart of Citigroup Inc. (C) – Source: TradingView
Surge score: 35/100
% Above 52-wk low: 2%
Sales growth: -1%
Return on Equity: 11%
Triple momentum: no
This dumpster fire of a stock has been moving lower for a year now.
It is currently forming a shelf with support at $45.
If it breaks this level and makes a new low, consider going short with a stop at $49.20.
Finding Real Alpha
With the major indexes down double-digits and many of last year’s leading stocks down over 50%, consider checking out my Alpha Stocks trading service.
We recently recorded a 21.6% gain on the downside in only eight days as Pegasystems Inc. (PEGA) stock plunged…
As well as a gain of 21.3% in just 15 days in Permian Basin Royalty Trust (PBT) as that stock broke out of its range.
And this past Wednesday, we closed another winner in ProPhase Labs, Inc. (PRPH) for a two-day gain of 5.8%.
We also get together every Monday for an hour-long live session so that subscribers can ask questions and get guidance about our trades.
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.
Daily Chart of S&P 500 Index with Volume Indicators – Source: TradingView
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.
Daily Chart of Nasdaq Composite with Market Breadth Indicator – Source: TradingView
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.
Meridian Bioscience, Inc. (VIVO) with Volume Indicator – Source: TradingView
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.
Daily Chart of Invesco QQQ Trust (QQQ) – Source: TradingView
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 addedto 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…
Weekly Chart of Chinook Therapeutics, Inc. (KDNY) – Source: TradingView
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…
Daily Chart of Immunocore Holdings plc (IMCR) – Source: TradingView
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.
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?
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?
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?
