Weekly Update: Rare 10-day “Breakaway Momentum”
Good evening, and welcome to this week’s edition of Stealth Trades!
On Thursday, the stock market completed 10-day “breakaway momentum” – a feat seen only 22 times since the 1940s.
Originally studied by famed market technician Walter Deemer, breakaway momentum refers to a 10-day period where the New York Stock Exchange sees stocks advancing at double the rate stocks are declining.
The concept is known as market breadth, and it involves studying the total number of advancing versus declining issues.
Essentially, it means that a whole lot more stocks were going up than going down. This can happen for a day or two. But over a 2:1 ratio over a ten-day period is almost unheard of.
The table below shows the performance of the S&P 500 following each previous occurrence.
Based on this research, the market has a 95% chance of being higher 12 months from today for an average gain of 19.8%.
Again, this is not my research. But Deemer’s work has been instrumental in my own trading, and I have found it to be a great resource for timing the market.
Breakaway momentum, at least historically, is not found before small rallies. It appears only at the start of bull markets.
This is an incredibly bullish sign for stocks.
In light of this powerful signal, I am again focusing on long trades only this week. Here are a few high-flyers I have my eye on:
Madrigal Pharmaceuticals (MDGL)
Madrigal made a huge move in December following positive Phase 3 drug trial results.
The stock climbed 424% in just six days.
Shares are now forming a tight base with resistance near $305.
Watch for a breakout higher accompanied by a surge in volume. This could signal another leg higher.
Melco Resorts & Entertainment (MLCO)
Melco owns and operates a handful of luxury resorts, clubs and casinos.
The leisure group has been responsible for a high percentage of super performance stocks in the past, so I’m happy to see a good trending name in this sector.
The stock broke out of a consolidation base in late November and hasn’t looked back since. Shares have been holding their 10-day EMA (yellow line) the entire time – a sign of strength for any stock.
I will consider buying on a pullback to the 10-day or a high volume move above $14 per share.
Viking Therapeutics (VKTX)
VKTX is a high-flying biotech stock.
Just as we have seen with other high relative strength names, it is holding above its 10-day moving average in a clear display of power.
I issued an official buy recommendation on this stock to Stealth Trades members on January 6.
Since it is approaching previous highs, we closed out half the position for a 13% gain on the stock and 90% on the call options.
If VKTX can get into new high ground above $10 a share, we could see another strong wave higher.
Best wishes for your trading,
Ross Givens
Editor, Stealth Trades