Weekly Update: Stocks Down but Bull Market Still Intact
Good evening, and welcome to this week’s edition of Stealth Trades!
As of Friday morning, stocks are down roughly 1% for the week. After hitting a double top on Monday, the indexes pulled back slightly into their 10-day moving average.
The S&P continues to hold above the 21-day EMA, however, so this uptrend is more than intact. The bull market we called for in January remains in full effect.
Pullback days like Thursday can be a great stress test for the market. Did the market sell off all day and close near the day’s low? Or did it rally back in the afternoon and “reject” the selling pressure like we saw yesterday?
For individual stocks that pull back, was the selloff on heavy above average volume? Or did it take place on lighter volume?
The latter is what I want to see from market leaders (more on that in a moment).
A quick look at the leading stocks tells me leadership is still intact.
Nvidia, Meta, Palo Alto, Dynatrace, Marvell and Microsoft are all holding up well near their highs.
Unless they start rolling over, the bull market is intact, and the AI theme we have seen play out over the last six months will continue to be where we focus our efforts.
One thing I like to do when stocks are down in the morning is look for names bucking that trend.
I keep a watchlist in TradingView with 49 AI stocks on it. An hour into Thursday’s session, 48 of those stocks were red.
1 was green – DigitalOcean Holdings (DOCN).
Despite the bloodbath taking place, DOCN was actually up 4% on the day.
It was also breaking above a short-term pivot point at $41.
We immediately recommended this stock as a buy to our Alpha Stocks members.
DOCN surged and we are up 14% on the stock in less than 24 hours.
Nothing is guaranteed. And if the market had continued to sell off, the trade may not have played out as well as it did.
But in trading, you always want to focus on the strongest names –stocks showing the greatest strength, especially when things are ugly.
Earlier I said that I want to focus on those whose pullbacks are showing the most promise. I want to see shallow retracements on light volume. This is my clue that the big players are not selling, and the stock has a good chance of pushing higher.
Below are a few that I like right now:
Dynatrace (DT)
Dynatrace is a software company developing intelligent platforms that allow customers to modernize and automate IT operations.
Their secret sauce? You guessed it… artificial intelligence.
Now only has the pullback been shallow (only 6% from its highs), it took place on decreasing volume.
The stock is breaking through its $52 pivot point as I type this, making it an actionable trade.
I just picked up a few hundred shares with a stop loss at 49.80 to risk just under 5% on the trade.
Datadog (DDOG)
Datadog is another AI name that has come back to life in a big way.
After falling 68% in last year’s bear market, the stock has surged 58% in just the last two months.
The shallow base formed over the last few weeks took place on lower-than-average volume – a hint that institutions are not selling, and the stock is becoming harder to buy.
DDOG just pushed through the $100 century mark which has acted as resistance for the last five weeks.
Traders could buy here with a stop just beneath the 90.88 swing low to risk 10% on the trade.
Marvell Technology (MRVL)
This isn’t another AI stock, is it Ross?
Yes. It is.
Marvell is a leading semiconductor stock whose products are used heavily in artificial intelligence applications.
The stock surged 40% in two days following a good earnings report and shares have consolidated in a tight range ever since.
MRVL tried to breach the low of the base on June 23, and we saw nice buying to support the price.
Volume remains low and price action is shallowing out nicely.
I will consider buying on a break above the short-term pivot (dashed line on chart) at 61.50.
As long as the stock does not make a new low before then, you can use the June 23 low for a stop loss to risk roughly 8% on the trade.
Best wishes for your trading,
