Welcome back to Mosaic Chart Alerts!
In this post, I’ll focus on setups that I’m monitoring for both long and short positions. With a chart and short write-up, this is a quick way to scan and plan potential trades.
These ideas are the end result of my process to identify stocks offering the right combination of fundamentals along with a proper chart setup.
Here are my notes from a focus list of setups I’m monitoring.
Stock Market Update
Speculation is building for next week’s FOMC meeting, and what the Federal Reserve has in store for additional rate hikes. While market implied odds indicate another 0.25% rate hike, investors will being paying close attention to the Fed’s signaling on the outlook with recent inflation data coming in softer than expected. And while the Fed is sure to take center stage, I’ll be focusing on the 2Q earnings season and how the outlook for corporate profits is evolving. As I wrote about recently, better earnings are needed to sustain the recent advance in stocks. And so far, the early indications are positive with 80% of companies beating expectations with actual earnings coming in about 9% above estimates for the S&P 500 (the chart below from FactSet includes sectors as well).
While heavyweights like Tesla, Microsoft, and Google-parent Alphabet are reporting over the coming week, its been the recent action in the average stock that is most encouraging. I’ve written recently about my “Big 3” for tracking risk sentiment. That includes ETFs in the speculative and small-cap growth space like IWO, ARKK, and IPO. All three are emerging from bottoming bases. We’ve also seen a recent surge in stocks trading above their 50-day moving average, which is a good gauge of intermediate-term trend. You can see that figure in the chart below, where the percent above the 50-day has made a quick recovery since June.
The only drawback with this rally is that investor sentiment is becoming extremely bullish. But I won’t become too concerned until bullish sentiment is accompanied by weakening breadth, and I’m not seeing that just yet. That means I continue to take breakouts meeting my criteria and trail open positions. For this week, I’m removing MPWR from the watchlist as the stock breaks out and completes its pattern. Several other names on the watchlist are in the process of breaking out as well, which I update in this week’s charts.
Keep reading below for all the updates…
Long Trade Setups
HGBL
Took this chart back to 2020 to show the importance of the $4 area. That prior high was tested recently, with the stock now pulling back since late June. That’s resetting the MACD at the zero line, which is now turning higher. Looking for a move over $4.15. More volatile small-cap name, so position size accordingly.
LTH
This has been a watchlist stock in the past. A series of higher lows since November has brought price back to the post-IPO high around the $22 level. Recent action testing that level with the relative strength (RS) line near new highs. Would like to see more basing action reset the MACD before attempting new highs.
MOMO
Consolidating since January as part of an overall bottoming base. Looking for a move over $10-11 to signal the start of the next move higher. Recent MACD reset at zero is constructive as well.
ENVA
After spiking to new highs in early February, the stock retraced the gains from the last base breakout. Price recently tested the highs with the RS line staying in a good position. Last several trading sessions taking out the $55 resistance level following a MACD reset.
IOT
Price rallied to the post-IPO highs around $30. With the recent pullback from that level, the MACD is resetting at zero with the RS line staying near the highs. A breakout over $30 with the RS line at a new high and the MACD turning up from zero is my ideal trade scenario.
NABL
Another recent IPO testing the prior highs around $15.50. Prefer to see the stock hold the $14 support level while it consolidates. Watching for a breakout over $15.50 with the RS line confirming to new highs.
SKX
Tested the highs from 2021 at the $55 resistance level and pulled back toward the 50-day moving average. The $50 level is also good support from a prior breakout. Looking for a move to new highs, and don’t want to see $50 give way.
CIVI
Energy exploration and production company starting to move out of this triangle pattern. Price is now moving above trendline resistance, and now watching for new all-time highs.
Short Trade Setups
None this week!
Rules of the Game
I trade chart breakouts based on the daily chart for long positions. And for price triggers on long setups, I tend to wait until the last half hour of trading to add a position. I find that emotional money trades the open, and smart money trades the close. If it looks like a stock is breaking out, I don’t want a “head fake” in the morning followed by a pullback later in the day.
I also use the RS line as a breakout filter. I find this improves the quality of the price signal and helps prevent false breakouts. So if price is moving out of a chart pattern, I want to see the RS line (the green line in the bottom panel of my charts) at new 52-week highs. Conversely, I prefer an RS line making new 52-week lows for short setups.
Also for long positions, I use the 21-day exponential moving average (EMA) as a stop. If in the last half hour of trading it looks like a position will close under the 21-day EMA, I’m usually selling whether it’s to take a loss or book a profit.
For short (or put) positions, I trade off a four-hour chart instead of a daily. Why? There’s a saying that stocks go up on an escalator and down on an elevator. Once a profitable trade starts to become oversold on the four-hour MACD, I start to take gains. Nothing like a short-covering rally to see your gains evaporate quickly, so I’m more proactive taking profits on short positions. I also use a 21-period EMA on the four-hour chart as a stop. If there is a close above the 21-period EMA, I tend to cover my short.
For updated charts, market analysis, and other trade ideas, give me a follow on Twitter: @mosaicassetco
Disclaimer: these are not recommendations and just my thoughts and opinions…do your own due diligence! I may hold a position in the securities mentioned in this post.