$UTLA and $ORLY: Monday Market Spotlight

Preparing For Take Off 

After watching the market swing in double digits on a regular basis for the past 3 months, it was great to get some confirmation of a bullish stance last week. For the past 3 weeks, $SPY has been trading above the 8 day exponential moving average line with the exception of 1 day of market reversal on the 17th. The 17th was the day when all April stock options expired so institutions were obviously covering their hedged positions. 

There was a massive sell off in every sector except for Health Care (XLV).  Institutions came roaring in last week in heavy volume though. Currently the condition of the market is
“Confirmed Uptrend” according to IBD®.  This is a good time to be establish a position in a cream of the crop growth stock if you've got one lined up.


Where Are The Leaders This Week?

Once I sat down to analyze the 9 sector ETF's this weekend, something became really apparent to me. Consumer Discretionary and Health Care continue to lead the pack so that's where I'm focusing my attention this week. Markets in Asia have also been outperforming US markets for the past six weeks. Institutions have certainly noticed and are putting money into Asia as a result.  They're also showing a high degree of caution by dumping cash into "thin" stocks which is uncharacteristic behavior.  My major concern right now is that we still have 11 distribution days between $SPY and $QQQ.  We are also in the midst of earnings season this week and I eliminate this variable during my stock selection process.

Rock Star Stocks of the Week

This week, 30 of the IBD® 50 are thin stocks (stocks trading under $100M/Day) so I eliminate them as a part of my process.  Several of the stocks are reporting earnings in the next 10 days so they get eliminated too. After applying my strict filters, there are only 2 stocks worthy of planning a trade for:

$ULTA
$ORLY

I've prepared a free sample of a trade plan for $ULTA this week which you can download here.  I think the $ORLY is still a bit on the risky side and getting involved right this moment could be a chase.  It is never a good idea to chase a stock if it has surpassed its goldilocks buy point zone.  Don't fear, history suggests that 40% of the good quality growth stocks often retrace to their buy point zone so you'll get another opportunity if it's the real McCoy.  

Happy trading!

Amin Hemani