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A quick note on recent market action
Please note, Brown Technical Insights will be off next week for Thanksgiving.
As a reminder, Brown Technical Insights is off next week, but Tuesday’s market reaction to CPI needs addressing.
A few key stats on what transpired:
The Russell 2000 gained 5.49%, its best day since November 10, 2022, and second best day since 2020.
The Russell 2000 outperformed the S&P 500 by 3.48%, the most since March 19, 2020, and the third most since IWM’s inception in 2000. This follows the worst week for smalls relative to large since April 2020.
Advancers outnumbered decliners by an outstanding 16:1. The only times we’ve seen better in the past 5 years? January 2019, April 2020, and October 2022.
All of this adds to the case for a year-end rally and is a step toward fixing the breadth issues I addressed on Monday. The technical case for continued outperformance in small-caps is tenuous (the IWM:SPY ratio was literally at 22-year lows on Friday) but I’ll continue to monitor for signs of opportunity.
This week in Stock Trends, we’ll look at Tuesday’s biggest gainer within the Nasdaq 100, S&P 500, and Dow, as well as:
Nvidia’s setup going into earnings next week
Tuesday’s biggest movers
Nasdaq 100: Enphase Energy +16.4%
ENPH is a great stock to discuss because more so than small caps, what Tuesday was really about was short covering. And while a short squeeze can always move big quickly, nothing about this chart has changed, and even yesterday’s attempt at follow-through was sold hard. Stay away.
S&P 500: Vornado Realty Trust +15.5% (second-best behind ENPH)
We got shaken out of Vornado on the Blue Chip Hot List, but it looks like the general idea was right. VNO has formed an inverse head and shoulders roughly around the key $20 level that we used as our stop and has now broken out. I still like its chances to push up toward $27.
Dow Jones Industrial Average: Home Depot +5.4%
Home Depot is about as neutral as it gets short-term, but if you zoom out, this has the potential to be an attractive base. The October lows near $275 could be a stop if you wanted in now, but I’d be more inclined to buy it closer to a breakout if it can show some more momentum and relative strength.
Revisiting our 10 tech bases: 7 have broken out
The following 10 charts were featured in the October 19 edition of this report, “10 big tech bases” and the 7 in this section have since broken out. The measured target provided is simply the height of the base, and the breakout level is also provided to potentially use as a stop. Finally, while I like all of the charts looking out over the next several months, they are all short-term overbought/extended, so any short-term consolidation shouldn’t come as a surprise.
Measured target: $1,046. Breakout/stop: $923
CDW: CDW Corp
On Monday, I noted 6 of these had broken out, but CDW has now made it 7.
Measured target: $250. Breakout/stop: $215
Measured target: $509. Breakout/stop: $367
KLAC: KLA Corp
2 for this one because KLA Corp had already broken out of its larger base when featured, but broke out of a small base in the past week.
Long-term measured target: $626. Breakout/stop: $443
Short-term measured target: $589. Breakout/stop: $516
Measured target: $460. Breakout/stop: $340
*This is a Blue Chip Hot List holding and I am moving the stop up to that level from $312.
PTC: PTC Inc.
Measured target: $200. Breakout/stop: $150
ROP: Roper Technologies
Measured target: $640. Breakout/stop: $500
Revisiting our 10 tech bases: The 3 remaining
APH is just riiight there, but I don’t want to count it because it hasn’t hit a new high, and (like a lot of stocks yesterday) it printed a potential reversal candlestick on Wednesday. First step is clearing yesterday’s intraday high of $89.75. If we can do that, I like its chances to take out the July highs just above.
HPE: Hewlett Packard Enterprise
HPE hasn’t been a relative leader, but it has participated enough to keep up with the market over the past month. I wouldn’t buy it right here at the 50% retracement of the correction, but the base is still enticing if it can clear $18.
MPWR: Monolithic Power System
MPWR is short-term overbought and still needs another 8% of upside to break out. However, I’m keeping a close eye on this one because the measured target ($848) implies some of the largest potential upside of all these.
Mag 7 charts
Meta breaks out to 52-week highs
META just broke out of a 5-month consolidation that measures to $375. That is just $10 short of the 2021 all-time highs.
Inverse head and shoulders for Tesla?
It is hard to get super excited about Tesla until the downtrend line is broken, but the stock just completed a mini inverse head and shoulders pattern that measures to $261. That’s enough to challenge the downtrend line, but not quite enough for a higher high.
Nvidia going into earnings testing all-time highs
Nvidia’s false breakdown and move above the October highs has negated any chance of this being a head and shoulders pattern. If anything it now looks like a base. The company reports earnings Tuesday after the close, but at current levels, the risk/reward is a coin flip. A breakout targets another $100 of upside, but a decline back to the bottom of the base is $100 (~18%) of downside.
Other noteworthy charts
Bull flag in DraftKings
DraftKings is an attractive short-term setup using $34 as a stop. The stock broke out to 52-week highs last week, formed a bull flag above prior resistance, and just broke out again. The measured target on the bull flag is $42.
D.R. Horton back within striking distance of ATHs
Watch the homebuilders closely. Tech is back above resistance and making new all-time highs, can the other poster child for leadership in 2023 do the same? So far, DHI has stopped just short of its July highs, making it an unattractive entry point.
Lockheed Martin clinging to support
Despite all the conflict in the world, aerospace and defense names haven’t been able to get going as a group. LMT is on the right side of support but was actually one of the few stocks in the whole market down on Tuesday. Neutral at best.
Costco breaks out
You’re welcome Costco longs. The diaper and food budget of the Brown household has finally pushed Costco out of a 4-month base and to 52-week highs. This should be able to test the all-time highs by year-end.
Scott Brown, CMT
Founder, Brown Technical Insights
Essential insights into market trends, technicals, and opportunities