We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Momentum Mondays: Stocks Setting up for an Epic Dip Buying Opportunity?
Read MoreHide Full Article
Want to start the week ahead of the pack? Check out ‘Momentum Mondays,’ where I cover the leading breakout stocks in the market, summarize the major events of the week ahead, and prepare investors for profitable trading.
One of the ways I like to analyze the market is by seeking stocks that show relative strength compared to the broad market and identifying technical chart patterns like bull flags to measure momentum trades from.
If I can align this strategy with top Zacks Rank stocks and the regime of the broader market, I can expect to make strong investment returns. Here I will share with you some of those trading setups.
Stock Market Pullback
After bottoming in March, and moving higher for more than four months unabated, the broader stock market is three weeks into a pull-back. There are several developments today causing the sell off, including market expectations of the Fed holding interest rates higher for long, 15-year highs in the 10-year Treasury Note rate, and Fitch Ratings Agency potentially downgrading major lenders including JP Morgan.
However, after such an incredible run-up this year it is no surprise, the market is staging a minor correction. And frankly, what is now a -6% pullback is healthy if we expect stocks to continue higher into the end of the year.
More often than not the market narratives will be written after the price moves, so we can expect certain segments of financial media to become vocally more bearish this week, although I think the market is setting up for another bull run.
Image Source: TradingView
Buy the Dip
With the US economy now estimated to be humming along near 6% annual growth, it’s no wonder the stock market has firmed up this year. But investors are now turning good news into bad news, because based on their logic, a strong economy gives the Federal Reserve more leeway in keeping interest rates high.
I think it is only a matter of time before this narrative passes though. A narrative as illogical as strong economy equals selling stocks can only persist for so long.
Additionally, as much as the Fed and the market talk of tightening credit markets, financial conditions remain very conducive to strong growth, and higher financial markets. Based on the National Financial Conditions Index (NFCI), financial conditions are as loose as they were when the Fed began tightening early 2022.
How can the financial economy be as loose as it was in 2022 with interest rates 500 basis points higher? Well, that is a fair question, but is a topic that deserves a whole article of its own. Nonetheless, liquidity is still plentiful, and should remain a driver of higher equities and more risk taking.
Image Source: Chicago Fed
Week Ahead
There are a few major events coming up this week investors will most definitely want to keep an eye on. The beginning of the week will be mostly quiet with services and manufacturing PMI data and new home sales.
But the action should pick up significantly by Wednesday afternoon, when semiconductor giant, and strongest stock in the S&P 500 Nvidia (NVDA - Free Report) reports Q2 earnings. Nvidia has been the stock to own this year, and based on Zacks research is likely to see earnings an earnings beat and more buying strength.
Of course, nobody knows exactly how the stock will report, or how it will react to the data, but its moves following the earnings report could lead the market.
Then on Thursday, the Jackson Hole Economic Symposium begins. The Federal Reserve Bank of Kansas hosts central bankers, policy makers and economists from around the world, and investors can expect several market moving actors to speak at the conference.
Then on Friday morning, Jerome Powell will be speaking at the event. His speeches at Jackson Hole can be very significant, providing forward-looking statements, and hinting at future policy decisions. Last year, his speech caused a sell-off, so market participants around the world will be watching closely.
Sectors Showing Relative Strength
While the market was selling off over the last three weeks, I noticed two sectors showing considerable resilience. The energy sector ETF (XLE - Free Report) was positive over this time, and the healthcare sector ETF (XLV - Free Report) remained unchanged, a near 5% outperformance of the broad market.
Relative strength like this can often indicate that a sector will have momentum going forward, and I think healthcare and energy could be big winners in the next leg higher.
Image Source: Zacks Investment Research
The healthcare sector ETF XLV is showing some especially interesting technical characteristics. It has underperformed the market in 2023 and has traded sideways for nearly two years now. But more recently, the sector has shown relative strength. To me, this looks like a massive bull flag that if the market breaks out from could lead to a massive move higher.
Image Source: TradingView
Regarding individual healthcare stocks, there are two that are drawing my attention. Both Johnson and Johnson (JNJ - Free Report) and iRadimed(IRMD - Free Report) have top Zacks Ranks, and compelling technical chart setups. iRadimed is a medical technology company known for its MRI compatible products, and Johnson and Johnson is a multination healthcare and consumer goods company. JNJ current has a Zacks Rank #2 (Buy) rating and IRMD enjoys a Zacks Rank #1 (Strong Buy).
The chart pattern on JNJ is especially convincing. If the price can breakout and close above the $174.10 level, it should initiate a bull run in the stock. Alternatively, if it can’t hold the $171.50 level the setup is invalidated.
Image Source: TradingView
Regarding energy stocks, there are two that I cannot ignore. Enerplus Corporation (ERF - Free Report) and Helix Energy Solutions Group(HLX - Free Report) both boast Zacks Rank #1 (Strong Buy) ratings, and picture-perfect technical chart setups.
This is the technical setup on Enerplus Corporation. After breaking out in early July and trading significantly higher, the stock has taken a breather to build out a very nice consolidation bull flag. This is very promising behavior for the stock. If the price can break out above the $17 level, it should make a run higher. Alternatively, if it break out and reverses, or loses support at $16.25 the setup is no longer valid.
Image Source: TradingView
More Stocks
While we noted that Energy and Healthcare have shown considerable relative strength during this market pullback, I believe Tech will continue to be a winning sector through the year end as well. In this day in age, Technology stocks are truly king. Especially the Artificial Intelligence trend, which has carried the technology and semiconductor sectors higher all year is likely to continue.
Lam Research Corporation (LRCX - Free Report) might be my favorite stock in the market today. It has a Zacks Rank #1 (Strong Buy) rating, a clean technical chart setup, and is an unbelievable company that plays a critical role in the semiconductor industry and has amazing business economics.
This descending bull flag shown in the chart below could lead to a large move higher. If LRCX stock can clear the $659 level, it should lead to another new YTD high. However, if the stock can’t stay above the $639 level, investors may want to look for other opportunities in the market.
Image Source: TradingVIew
The last stock I want to highlight today is Uber (UBER - Free Report) , which has a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions.
Just this morning, Uber stock is gapping higher above this descending channel. So long as Uber stock doesn’t reverse back into the range today, this is a clean breakout and should lead to much higher prices.
Image Source: TradingView.com
Bottom Line
While some investors are fretting about this minor correction, others are excitedly searching for opportunities to pick up shares at a discount. By marrying the Zacks Rank, with momentum as I shared here, investors can gain a significant edge and possibly outperform the market.
Always keep risk management top of mind and stick to a trading plan! Best of luck out there traders!
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Momentum Mondays: Stocks Setting up for an Epic Dip Buying Opportunity?
Want to start the week ahead of the pack? Check out ‘Momentum Mondays,’ where I cover the leading breakout stocks in the market, summarize the major events of the week ahead, and prepare investors for profitable trading.
One of the ways I like to analyze the market is by seeking stocks that show relative strength compared to the broad market and identifying technical chart patterns like bull flags to measure momentum trades from.
If I can align this strategy with top Zacks Rank stocks and the regime of the broader market, I can expect to make strong investment returns. Here I will share with you some of those trading setups.
Stock Market Pullback
After bottoming in March, and moving higher for more than four months unabated, the broader stock market is three weeks into a pull-back. There are several developments today causing the sell off, including market expectations of the Fed holding interest rates higher for long, 15-year highs in the 10-year Treasury Note rate, and Fitch Ratings Agency potentially downgrading major lenders including JP Morgan.
However, after such an incredible run-up this year it is no surprise, the market is staging a minor correction. And frankly, what is now a -6% pullback is healthy if we expect stocks to continue higher into the end of the year.
More often than not the market narratives will be written after the price moves, so we can expect certain segments of financial media to become vocally more bearish this week, although I think the market is setting up for another bull run.
Image Source: TradingView
Buy the Dip
With the US economy now estimated to be humming along near 6% annual growth, it’s no wonder the stock market has firmed up this year. But investors are now turning good news into bad news, because based on their logic, a strong economy gives the Federal Reserve more leeway in keeping interest rates high.
I think it is only a matter of time before this narrative passes though. A narrative as illogical as strong economy equals selling stocks can only persist for so long.
Additionally, as much as the Fed and the market talk of tightening credit markets, financial conditions remain very conducive to strong growth, and higher financial markets. Based on the National Financial Conditions Index (NFCI), financial conditions are as loose as they were when the Fed began tightening early 2022.
How can the financial economy be as loose as it was in 2022 with interest rates 500 basis points higher? Well, that is a fair question, but is a topic that deserves a whole article of its own. Nonetheless, liquidity is still plentiful, and should remain a driver of higher equities and more risk taking.
Image Source: Chicago Fed
Week Ahead
There are a few major events coming up this week investors will most definitely want to keep an eye on. The beginning of the week will be mostly quiet with services and manufacturing PMI data and new home sales.
But the action should pick up significantly by Wednesday afternoon, when semiconductor giant, and strongest stock in the S&P 500 Nvidia (NVDA - Free Report) reports Q2 earnings. Nvidia has been the stock to own this year, and based on Zacks research is likely to see earnings an earnings beat and more buying strength.
Of course, nobody knows exactly how the stock will report, or how it will react to the data, but its moves following the earnings report could lead the market.
Then on Thursday, the Jackson Hole Economic Symposium begins. The Federal Reserve Bank of Kansas hosts central bankers, policy makers and economists from around the world, and investors can expect several market moving actors to speak at the conference.
Then on Friday morning, Jerome Powell will be speaking at the event. His speeches at Jackson Hole can be very significant, providing forward-looking statements, and hinting at future policy decisions. Last year, his speech caused a sell-off, so market participants around the world will be watching closely.
Sectors Showing Relative Strength
While the market was selling off over the last three weeks, I noticed two sectors showing considerable resilience. The energy sector ETF (XLE - Free Report) was positive over this time, and the healthcare sector ETF (XLV - Free Report) remained unchanged, a near 5% outperformance of the broad market.
Relative strength like this can often indicate that a sector will have momentum going forward, and I think healthcare and energy could be big winners in the next leg higher.
Image Source: Zacks Investment Research
The healthcare sector ETF XLV is showing some especially interesting technical characteristics. It has underperformed the market in 2023 and has traded sideways for nearly two years now. But more recently, the sector has shown relative strength. To me, this looks like a massive bull flag that if the market breaks out from could lead to a massive move higher.
Image Source: TradingView
Regarding individual healthcare stocks, there are two that are drawing my attention. Both Johnson and Johnson (JNJ - Free Report) and iRadimed (IRMD - Free Report) have top Zacks Ranks, and compelling technical chart setups. iRadimed is a medical technology company known for its MRI compatible products, and Johnson and Johnson is a multination healthcare and consumer goods company. JNJ current has a Zacks Rank #2 (Buy) rating and IRMD enjoys a Zacks Rank #1 (Strong Buy).
The chart pattern on JNJ is especially convincing. If the price can breakout and close above the $174.10 level, it should initiate a bull run in the stock. Alternatively, if it can’t hold the $171.50 level the setup is invalidated.
Image Source: TradingView
Regarding energy stocks, there are two that I cannot ignore. Enerplus Corporation (ERF - Free Report) and Helix Energy Solutions Group (HLX - Free Report) both boast Zacks Rank #1 (Strong Buy) ratings, and picture-perfect technical chart setups.
This is the technical setup on Enerplus Corporation. After breaking out in early July and trading significantly higher, the stock has taken a breather to build out a very nice consolidation bull flag. This is very promising behavior for the stock. If the price can break out above the $17 level, it should make a run higher. Alternatively, if it break out and reverses, or loses support at $16.25 the setup is no longer valid.
Image Source: TradingView
More Stocks
While we noted that Energy and Healthcare have shown considerable relative strength during this market pullback, I believe Tech will continue to be a winning sector through the year end as well. In this day in age, Technology stocks are truly king. Especially the Artificial Intelligence trend, which has carried the technology and semiconductor sectors higher all year is likely to continue.
Lam Research Corporation (LRCX - Free Report) might be my favorite stock in the market today. It has a Zacks Rank #1 (Strong Buy) rating, a clean technical chart setup, and is an unbelievable company that plays a critical role in the semiconductor industry and has amazing business economics.
This descending bull flag shown in the chart below could lead to a large move higher. If LRCX stock can clear the $659 level, it should lead to another new YTD high. However, if the stock can’t stay above the $639 level, investors may want to look for other opportunities in the market.
Image Source: TradingVIew
The last stock I want to highlight today is Uber (UBER - Free Report) , which has a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions.
Just this morning, Uber stock is gapping higher above this descending channel. So long as Uber stock doesn’t reverse back into the range today, this is a clean breakout and should lead to much higher prices.
Image Source: TradingView.com
Bottom Line
While some investors are fretting about this minor correction, others are excitedly searching for opportunities to pick up shares at a discount. By marrying the Zacks Rank, with momentum as I shared here, investors can gain a significant edge and possibly outperform the market.
Always keep risk management top of mind and stick to a trading plan! Best of luck out there traders!