Hello friends,
Last week ended with a pattern seen many times over the recent period of sessions – a strong Open and a weak Close, typical of choppy and weaker markets. This was specifically visible on the Russell 2000 (RUT), an important segment index of the small- & mid-caps, which is currently attempting to confirm the higher Highs and uptrend of the popular indices SP500 & Nasdaq (COMP), the latter largely driven by a very narrow set of tech mega-caps and a whole bunch of uninspiring industrials … of which some are starting to collapse, e.g. look at AAPL and GOOGL breaking down below their trendlines and the 200DMA.
Technically, RUT is in the process of confirming higher Highs, leading to a broadening of the market advance. However, see below the reluctance advance on RUT characterized by weak price action and reversals, and the advance on Nasdaq showing a dangerous number recent trading sessions representing masked selling on balance:
On top, a stark bearish divergence between the NASDAQ vs. NYSE A/D-lines, and a local bearish divergence on the NASDAQ & NYSE vs. stocks on each exchange making 52w-new Highs is appreciable (see each here).
Leading stocks remain choppy
Though not totally collapsing yet, price action and thus potentiality for proper risk management in the leaders of the day has been very limited in quality. Specifically, there are a good couple of stocks trending more or less up (e.g. ELF, VRT, NXT, ARM, CELH, SMCI, DUOL, IOT, etc.), but as good as all worthwhile ones are either extremely extended and at risk of falling into strong airpockets, or are just showing plain erratic price action reflecting anything but a clear bullish line of least resistance.
Take DUOL or IOT as examples. Though the indices have been ripping driven by the sluggards NVDA and AVGO and the likes, novel stocks with strong potential such as these are only reluctantly drifting up, with large whipsaws inhibiting risk management and holding duration, while low-risk entry points are largely absent.
DUOL gapped up on earnings a few days ago, just to immediately suck back, inable to hold much of its gains while the NASDAQ sprints on. IOT has been erratically trading sideways with the exception of earnings gaps, a fight between buyers and sellers. It’s recent digestion has been wedging, volatile & choppy, volume has been rising instead of cooling, and selling has not calmed down – if it’s such a great stock, why is is not LEADING the market instead of lagging it severely? I stayed away from Friday’s move on earnings due to these reasons – there is simply no need to risk money if the line of least resistance is not clear. Let other chop themselves up, and it IOT truly turns to become a rip’n’tear rocketship, then I can still join it at the next natural reaction.
Let’s see what happens, though IOT currently only reminds me of last year’s MBLY & PI last year April – same industry, similar trading character, similar setup. Both imploded soon in -30% drops or more.
For now, the trend remains up, but its character remains choppy and its anemic leadership is thinning almost every day. Tread with care.