“Stocks” are struggling…
I think most folks would say this right now. But what does that mean, exactly?
When most people refer to “stocks,” they’re talking about the indices.
And it’s true that the S&P 500 and Nasdaq 100 indices are both weak. Both major indices have put in lower and lower highs. They’re below their 200-day moving averages. They’re in downtrends.
But that doesn’t mean it's been impossible to make money in stocks. Plenty of stuff is working.
Gold stocks—one of my favorite groups—have been on fire. The VanEck Gold Miners ETF (GDX) has broken out of a nearly five-year base and is already up more than 14% this week alone:
Source: StockCharts
Growth leaders are also starting to emerge. Take a look at Netflix (NFLX). Shares of the streaming company surged nearly 5% yesterday.
It broke a multi-week downtrend and reclaimed its 50-day moving average:
Source: StockCharts
Palantir Technologies (PLTR) has also re-emerged as a leader.
Like Netflix, PLTR has broken out of a multi-week downtrend and reclaimed its critically important 50-day moving average:
Source: StockCharts
This is very important information. You see, the best individual stocks tend to bottom ahead of the indices. That’s why they’re called leaders.
Robinhood (HOOD)—one of the strongest stocks during the last bull cycle—bottomed in June 2022, about four months ahead of the indices. It went on to rally 882% over the next three years.
EMCOR Group (EME) also bottomed in June 2022. It went on to rally 408% over the same period. There are countless other examples of this.
These are the stocks we want to look for. We can locate them by looking for evidence of extreme relative strength. These stocks are maintaining their bullish chart structures despite the broad selloff and should continue to lead the pack as the market turns higher.
Justin Spittler
Chief Trader, RiskHedge
