Weekly Update: Stocks Trading in the “Chop Zone”
Good evening, and welcome to this week’s edition of Stealth Trades!
Stocks pulled back last week and are again trading in the “chop zone” where they have been stuck for two months.
The bear market may be over. But this new bull is taking its sweet time to get moving.
The big story this week was NVDA stock which skyrocketed as much as 30% Thursday after reporting better-than-expected earnings.
PLTR, AI, SOUN and the other big artificial intelligence stocks all gapped up on the news as well.
Artificial intelligence is becoming a dominant theme in this market. Every major tech company is dropping “AI” mentions in their earnings calls.
Nvidia makes the primary chips used in AI applications, so it makes sense that investors are piling into it. The stock is now up 168% on the year and only needs another 5% to join the $1 trillion valuation club.
Yesterday’s move in NVDA is a good reminder that indexes are not a good proxy for the health of the stock market.
Indexes are market-cap weighted. So NVDA makes up 5.57% of the Nasdaq 100 index. Add in Microsoft, Apple, Amazon and Google, and that is 42% of the index.
Think about that…
5 stocks make up almost HALF of the entire Nasdaq index.
When one of them is up 30% for the day, it can hide a lot of stocks going down.
People watching the index would assume stocks had a great day. But there was a lot of red in my watchlist.
One way to take advantage of weakness like we saw this week is to buy stocks on pullbacks to key areas.
Here are a few I’ve got my eye on…
CVRx (CVRX)
CVRX has shown tremendous strength this month. It reclaimed all of its moving averages in two days and has managed to hold above the 10-day EMA ever since.
This short-term moving average is what I want to see supporting the stock on a strong move up.
Shares pulled slightly back this week and kissed the support/resistance level at 13.00.
I would consider buying in the low $13 area with a stop loss at $12.00.
InterDigital (IDCC)
IDCC is another high-flier taking a pause to digest its recent surge.
Investors loved the most recent earnings report and drove the stock up 28% in a week. The run happened on good volume with nice follow-through, so I expect to see shares continue to drift higher.
Right now, IDCC has a support shelf near $82. I would be surprised to see it get much lower than that.
A trader could buy here with a 5% stop loss for a low-risk trade.
Micron Technology (MU)
Micron is a semiconductor stock riding some of the momentum from yesterday’s earnings beat at Nvidia.
Notice the textbook breakout pattern that has formed over the last three months – a series of shallowing retracements with resistance at $64.
The 200-day moving average is finally turning up and other MA’s are properly stacked and trending higher.
This is the first breakout into a new Stage 2 uptrend which is exactly where I like to buy. Look to build a position in the mid $60s if possible.
The trade sours if it closes below its 50-day moving average (red line on chart) which is currently around $62 and rising.
Best wishes for your trading,