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Momentum Monday: Opportunities Abound in the Stock Market
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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.
Bull Moves Building
Last week in Momentum Monday, I noted that equity indexes were going through one of the sharpest pullbacks in several months, however I thought the volatility would bring dip buying opportunities. So far, the lows have held, and stocks appear to be building a base to trade higher from.
Last week’s trading activity was punctuated by the Jackson Hole Economic Summit, which investors were anxiously awaiting all week. On Friday morning, Jerome Powell spoke about monetary policy and did not disappoint market participants.
While many commentators noted his hawkish tone, as he remained stern that inflation was still too high, and that further interest rate hikes may be required, he was able to balance his statements by the end of the speech. He stated that the Fed would “proceed cautiously,” and that “doing too much” could do unnecessary harm to the economy. As usual, Powell managed to say a lot without saying too much, allowing for enough reassurance, caution, and open-endedness to mostly soothe market expectations.
I think that the market’s ability to hold above last week’s lows was telling, and as important as news can be, the market’s response to news is where the real signal comes from. To me, it looks like stocks are setting up for another leg higher.
Image Source: TradingView
Some Investors Refuse to Participate
Even after the S&P 500 has rallied 15% YTD and the Nasdaq 100 37.5%, some investors just will not buy stocks. The flow of funds into US equities has been surprisingly slow all year.
According to Morningstar, “U.S. equity fund flows have gotten out of the red (for the month), but they’re hardly raking in assets. After taking in just $5.6 billion in June, they gathered a paltry $1.6 billion in July. For the year to date, U.S. equity funds have shed $71 billion.”
Furthermore, according to the NAAIM Exposure Index, active fund managers were shaken out of their long equity positions during the pullback in August. They have reduced equity exposure to the lowest levels of the year.
All of this I think is quite bullish. It means that any rally that starts to build in stocks is going to be chased very aggressively. Investors should be reassured because the fewer investors involved in the move, the more that will have to buy back shares to chase returns into year end.
Image Source: NAAIM
Week Ahead
There are a few economic releases and earnings reports to keep an eye on this week, although earnings season is definitely winding down.
Salesforce is reporting Wednesday after the market closes, while Broadcom does its earnings call Thursday after the close. A few small/mid cap software names will be reporting this week as well, including CrowdStrike, Okta, and MondgoDB.
Regarding economic data, on Tuesday, we will get updates on US job openings and consumer confidence. Then on Wednesday, ADP employment and a GDP revision as well as pending home sales.
Thursday the more important data will be rolling in, with initial jobless claims and PCE inflation, and on Friday, US nonfarm payrolls, and unemployment rate. The late week’s data will be critical for further gauging what to expect from the Federal Reserve and its interest rate policy.
Trade Setups
Interestingly, the Utilities sector has been one of the strongest over the last week. Because I like to watch for relative strength, I immediately went to the Zacks Rank to find some utilities stocks with upward trending earnings revisions.
The Zacks #1 Rank didn’t disappoint, and I found one utility stock setting up perfectly for momentum traders. Vistra (VST - Free Report) enjoys a Zacks Rank #1 (Strong Buy) rating, and some impressive price strength.
Analysts have revised Vistra’s earnings estimates significantly higher, and EPS are projected to grow significantly over the next few quarters, while sales are expected to climb as much as 46% YoY in FY23.
After an initial breakout in July, VST has been building bull flags and charging higher. Over the last few weeks, it has formed another bullish chart pattern, and if the price can trade above the $30.50 level, it should send the stock to another all-time high. Alternatively, if VST can’t hold the $29.60 level, the setup is invalidated, and investors may want to look for opportunities elsewhere.
Image Source: TradingView
Another top-ranked stock to watch this week is Ferrari (RACE - Free Report) . Ferrari boasts a Zacks Rank #1 (Strong Buy) reflecting upward trending earnings revisions, and some incredibly strong growth projections. FY23 sales are forecast to grow 18.5% YoY to $6.35 billion, while earnings are expected to climb 28.4% YoY to $6.88 per share.
The technical setup on Ferrari stock is extremely nice as well. RACE has been forming a bull flag over the last seven weeks and looks to be breaking out this morning. If the price can close above the $313 level, it should confirm the breakout and send the stock significantly higher. But, if it reverses immediately, or loses the $307 level it may need more time to set up another trade.
Image Source: TradingView
Just a week and a half ago The TJX Companies (TJX - Free Report) , posted a huge earnings beat, along with upward guidance. A trend that has been building is consumers favoring discount retailers as inflation continues to challenge home budget constraints.
The TJX Companies has a Zacks Rank #2 (Buy) rating and has seen analysts almost unanimously upgrade earnings estimates across timeframes. For FY23 earnings are projected to grow 18.7% YoY while sales are expected to increase 7.4% to $53.6 billion.
Image Source: Zacks Investment Research
After gapping higher following its earnings report, TJX is building a bull flag right at its all-time highs. If the price can breakout above the $90 level, it should initiate another rush of buying and send the stock higher. However, if it can’t hold above the $87.90 level of support, the setup is invalid and investors can look for opportunities elsewhere.
Image Source: TradingView
For the last trade setup, I am going to swing back to a stock I highlighted last week, that continues to form a bullish technical pattern. Enerplus (ERF - Free Report) has a Zacks Rank #1 (Strong Buy) rating, and traded sideways, within the consolidation all last week. With these kinds of setups, the tighter the range the better the opportunity.
With the WTI oil market looking ready to make another bull run, it may be an opportune time to jump back into energy stocks. If Enerplus can breakout above the $17.05 level, it should initiate a rally. Alternatively, if ERF stock can’t hold above the $16.50 level, investors should remain cautious on the stock.
Image Source: TradingView
Bottom Line
With the uncertainty of Jackson Hole now in the past, it looks like the stock market should firm up into year end. This week will be rather important to gauge the buying interest from investors, and if things hold up may signal another big move higher in September.
I am definitely leaning towards a bullish move going forward, so investors should keep an eye on the leading stocks as it could be a fun forth quarter of trading.
Of course, even the best trading setups can fail, so investors should keep risk management top of mind, and always stick to the trading plan. Best of luck this week!
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Momentum Monday: Opportunities Abound in the Stock Market
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.
Bull Moves Building
Last week in Momentum Monday, I noted that equity indexes were going through one of the sharpest pullbacks in several months, however I thought the volatility would bring dip buying opportunities. So far, the lows have held, and stocks appear to be building a base to trade higher from.
Last week’s trading activity was punctuated by the Jackson Hole Economic Summit, which investors were anxiously awaiting all week. On Friday morning, Jerome Powell spoke about monetary policy and did not disappoint market participants.
While many commentators noted his hawkish tone, as he remained stern that inflation was still too high, and that further interest rate hikes may be required, he was able to balance his statements by the end of the speech. He stated that the Fed would “proceed cautiously,” and that “doing too much” could do unnecessary harm to the economy. As usual, Powell managed to say a lot without saying too much, allowing for enough reassurance, caution, and open-endedness to mostly soothe market expectations.
I think that the market’s ability to hold above last week’s lows was telling, and as important as news can be, the market’s response to news is where the real signal comes from. To me, it looks like stocks are setting up for another leg higher.
Image Source: TradingView
Some Investors Refuse to Participate
Even after the S&P 500 has rallied 15% YTD and the Nasdaq 100 37.5%, some investors just will not buy stocks. The flow of funds into US equities has been surprisingly slow all year.
According to Morningstar, “U.S. equity fund flows have gotten out of the red (for the month), but they’re hardly raking in assets. After taking in just $5.6 billion in June, they gathered a paltry $1.6 billion in July. For the year to date, U.S. equity funds have shed $71 billion.”
Furthermore, according to the NAAIM Exposure Index, active fund managers were shaken out of their long equity positions during the pullback in August. They have reduced equity exposure to the lowest levels of the year.
All of this I think is quite bullish. It means that any rally that starts to build in stocks is going to be chased very aggressively. Investors should be reassured because the fewer investors involved in the move, the more that will have to buy back shares to chase returns into year end.
Image Source: NAAIM
Week Ahead
There are a few economic releases and earnings reports to keep an eye on this week, although earnings season is definitely winding down.
Salesforce is reporting Wednesday after the market closes, while Broadcom does its earnings call Thursday after the close. A few small/mid cap software names will be reporting this week as well, including CrowdStrike, Okta, and MondgoDB.
Regarding economic data, on Tuesday, we will get updates on US job openings and consumer confidence. Then on Wednesday, ADP employment and a GDP revision as well as pending home sales.
Thursday the more important data will be rolling in, with initial jobless claims and PCE inflation, and on Friday, US nonfarm payrolls, and unemployment rate. The late week’s data will be critical for further gauging what to expect from the Federal Reserve and its interest rate policy.
Trade Setups
Interestingly, the Utilities sector has been one of the strongest over the last week. Because I like to watch for relative strength, I immediately went to the Zacks Rank to find some utilities stocks with upward trending earnings revisions.
The Zacks #1 Rank didn’t disappoint, and I found one utility stock setting up perfectly for momentum traders. Vistra (VST - Free Report) enjoys a Zacks Rank #1 (Strong Buy) rating, and some impressive price strength.
Analysts have revised Vistra’s earnings estimates significantly higher, and EPS are projected to grow significantly over the next few quarters, while sales are expected to climb as much as 46% YoY in FY23.
After an initial breakout in July, VST has been building bull flags and charging higher. Over the last few weeks, it has formed another bullish chart pattern, and if the price can trade above the $30.50 level, it should send the stock to another all-time high. Alternatively, if VST can’t hold the $29.60 level, the setup is invalidated, and investors may want to look for opportunities elsewhere.
Image Source: TradingView
Another top-ranked stock to watch this week is Ferrari (RACE - Free Report) . Ferrari boasts a Zacks Rank #1 (Strong Buy) reflecting upward trending earnings revisions, and some incredibly strong growth projections. FY23 sales are forecast to grow 18.5% YoY to $6.35 billion, while earnings are expected to climb 28.4% YoY to $6.88 per share.
The technical setup on Ferrari stock is extremely nice as well. RACE has been forming a bull flag over the last seven weeks and looks to be breaking out this morning. If the price can close above the $313 level, it should confirm the breakout and send the stock significantly higher. But, if it reverses immediately, or loses the $307 level it may need more time to set up another trade.
Image Source: TradingView
Just a week and a half ago The TJX Companies (TJX - Free Report) , posted a huge earnings beat, along with upward guidance. A trend that has been building is consumers favoring discount retailers as inflation continues to challenge home budget constraints.
The TJX Companies has a Zacks Rank #2 (Buy) rating and has seen analysts almost unanimously upgrade earnings estimates across timeframes. For FY23 earnings are projected to grow 18.7% YoY while sales are expected to increase 7.4% to $53.6 billion.
Image Source: Zacks Investment Research
After gapping higher following its earnings report, TJX is building a bull flag right at its all-time highs. If the price can breakout above the $90 level, it should initiate another rush of buying and send the stock higher. However, if it can’t hold above the $87.90 level of support, the setup is invalid and investors can look for opportunities elsewhere.
Image Source: TradingView
For the last trade setup, I am going to swing back to a stock I highlighted last week, that continues to form a bullish technical pattern. Enerplus (ERF - Free Report) has a Zacks Rank #1 (Strong Buy) rating, and traded sideways, within the consolidation all last week. With these kinds of setups, the tighter the range the better the opportunity.
With the WTI oil market looking ready to make another bull run, it may be an opportune time to jump back into energy stocks. If Enerplus can breakout above the $17.05 level, it should initiate a rally. Alternatively, if ERF stock can’t hold above the $16.50 level, investors should remain cautious on the stock.
Image Source: TradingView
Bottom Line
With the uncertainty of Jackson Hole now in the past, it looks like the stock market should firm up into year end. This week will be rather important to gauge the buying interest from investors, and if things hold up may signal another big move higher in September.
I am definitely leaning towards a bullish move going forward, so investors should keep an eye on the leading stocks as it could be a fun forth quarter of trading.
Of course, even the best trading setups can fail, so investors should keep risk management top of mind, and always stick to the trading plan. Best of luck this week!