Prepare to Employ Capital
Stock Setups for V, COST, HLT, AVGO, HD, IBKR, IQV & BABA
It’s time for a pullback and if you are prepared, this could be the most welcome pullback in recent history. This week is slated to be a volatile week, as Producer Price Index (PPI) will be reported on Tuesday, Consumer Price Index (CPI) will be reported on Wednesday, Initial Jobless Claims will be reported on Thursday. On top of that, Friday is Options Expiration, which is usually quite volatile. The McClellan Oscillator shows that breadth is ready for a pullback.
Also the NYSE Advance Decline Line ($NYAD) has hit its Upper Bollinger Band, which often brings a pullback or a bit of rest. Given the strength of the market, a retouch of the Middle Bollinger Band may be the worst case scenario, setting up another run higher. Notice that this scenario also took place in early November 2023, before a strong rally.
What makes this expected pullback so enticing is that we are in a new Swing Traders’ Market, which is the environment where stockpicker’s could make oversized returns. The three items criteria for this is: 1) the index must be above a rising 21 Exponential Moving Average (or 20 Simple Moving Average), 2) MACD must be above 0 and 3) there must be Net New Highs. Looking at the chart of the S&P 500 (SPY) we can see that it is trending above a rising 21 EMA, while the MACD is above 0 and there are Net New Highs. Unless the economic data drops next week change the dynamic of the market, we are in a Swing Traders’ Market. The Stochastics indicator does tell us that we are short-term overbought and susceptible to a pullback soon.
A key detail is that of the 218 Net New Highs on Friday, 76% of them are NYSE stocks, not Nasdaq stocks. This means that this rally is not led by Growth, Technology or the Magnificent 7. It is more widespread and current leaders are Blue Chip, Value, Utility, Financial, Industrial, Basic Material or Consumer Staple stocks. Although rallies that are not led by Growth/Technology are not as robust, looking into history, they could still last from 2 to 7 months.
The Nasdaq 100 (QQQ) is lagging but is not floundering. It is still in a Swing Traders’ Market as well, as it hits all 3 items on the checklist. Also notice that the Stochastics indicator is overbought so a pullback could occur soon, providing a good entry point.
Although the Russelll 2000 Growth Index (IWO) meets the criteria for being in a Swing Traders’ Market, it did have noticeable relative weakness on Friday. Although trading Small Caps could work, the degree of confidence is lower.
Here are the takeaways:
We are in a Swing Traders’ Market
This rally is being led by groups with a value, cyclical and defensive character
Technicals are short-term overbought, hinting a pullback is on the horizon
A plethora of economic news drops next week and next Friday’s options expiration could bring some volatility
The Options Market Maker Move (expected move) for next Friday for the SPY is $6.84, so the SPY could fall to $514 or rise to $527.68.
Unless the inflation-related economic news (most importantly CPI on Wednesday) changes the configuration of the market, preparing to buy the dip is a good strategy.
In the next section we’l go over stock setups for Visa, Costco, Hilton, Broadcom, Home Depot, Interactive Brokers, IQVIA and AliBaba.
Disclaimer - All materials, information, and ideas from Cycles Edge are for educational purposes only and should not be considered Financial Advice. This blog may document actions done by the owners/writers of this blog, thus it should be assumed that positions are likely taken. If this is an issue, please discontinue reading. Cycles Edge takes no responsibility for possible losses, as markets can be volatile and unpredictable, leading to constantly changing opinions or forecasts.
Stock Setups
Today we're simplifying our format to cover numerous setups. Anticipating a pullback next week, consider entering positions at the 10 or 21 EMA if buying resumes. We also suggest trend-following and using the 10 or 21 EMA as a trailing stop (we won’t provide profit targets). A cycle charts for all of these stocks will be included, so you can tighten stops or take profits at inflection points. Taking partial profits along the way is always a wise move. Now let’s go over the setups for V, COST, HLT, AVGO, HD, IBKR, IQV and BABA.