The Diamond PMO Scan is starting to pick up more results as we start seeing more market participation. The market is very overbought and needs a correction, but it doesn't seem interested. For more information on my thoughts about the market, read today's "DP Alert Mid-Week". NVIDIA landed in my Diamond Scan results. When I get a big name in my results, I will highlight it. NVDA's charts look pretty good, but I like the weekly chart best. I hope everyone has a great Thanksgiving holiday; there will not be a Diamonds Report on Thursday, but I will be writing one for ChartWatchers this weekend.
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Welcome to DecisionPoint Daily Diamonds, wherein I highlight five "diamonds in the rough.” These are selected from the results of my DecisionPoint scans, which search for stocks that could benefit from the trend and condition of the market. Remember, these are not recommendations to buy or sell, but are the most interesting of the stocks that surfaced in my scans. My objective is to save you the work of the initial, tedious culling process, but you need to apply your own analysis to see if these stocks pique your interest as well. There are no guaranteed winners here!
Current Market Outlook:
Market Trend: Currently, we have Trend Model BUY signals in all three timeframes on the DP Scoreboard Indexes.
Market Condition: The market is overbought, with Price Momentum Oscillator (PMO) BUY signals on the DP Scoreboards. Remember, overbought conditions can persist in a bull market.
Market Environment: It is important to consider the odds for success. The Silver Cross Index measures the percentage of stocks on IT Trend Model BUY signals (20-EMA > 50-EMA), while the Golden Cross Index measures the percentage of stocks on LT Trend Model BUY signals (50-EMA > 200-EMA). Here are the current percentages on the Silver and Golden Cross Indexes:
- Diamond Scan Results: 28
- Diamond Dog Scan Results: 8
- Diamond Bull/Bear Ratio: 3.5
New Oriental Education & Technology Group Inc (EDU) - Earnings: 1/20 - 1/24/2020
We don't quite have a breakout on EDU, but I like that it has bounced off the 20-EMA and closed near the top of today's price range. I'm not thrilled that the last two OBV tops were declining as price tops rose, but this one has been in a nice steady uptrend, has a strong SCTR and a PMO that suggests it's ready to continue the climb if we get the breakout.
The weekly PMO has been turning over, but this is due to the steady acceleration on the ride throughout 2019. The weekly PMO has ticked higher and is not overbought.
Generac Holdings Inc (GNRC) - Earnings: 2/12 - 2/17/2020
I spotted a pennant pattern on a flagpole. Even if you don't subscribe to this as being a flag, the symmetrical triangle/pennant is a continuation pattern and has broken as expected to the upside. Price is above the November top and the PMO is going in for a BUY signal. We also see volume confirming the rally with the recent breakout on the OBV.
My warning when looking at the weekly chart is that this has been a near-vertical rally since the summer. When the rising trend breaks, it could be fast and furious, so watch your stop. The PMO just accelerated higher and isn't overbought which suggests further upside.
KraneShares CSI China Internet ETF (KWEB) - Earnings: N/A
I don't usually include ETFs, but this one piqued my interest. It is volatile, so be ready to ride in both directions on the way up or make it a short-term investment to protect yourself from the pullback/corrections. Price needs to break out above $48. The PMO suggests that it will, as it has bottomed above the zero line and is ready to trigger a BUY signal. One sign of confirmation if it does break above short-term resistance would be the OBV climbing above the prior OBV top. The SCTR has reached into the hot zone above 75.
I see a somewhat complex double-bottom pattern forming. The PMO has moved into positive territory and the 17-week EMA has just crossed above the 43-week EMA. If the pattern does execute, the minimum upside target would put us very close to the all-time high.
Methode Electronics Inc (MEI) - Earnings: 12/5/2019
Today we saw a breakout on MEI and a close near the top of today's trading range. Volume could've been heavier, but it is holiday trading time right now. I like that the last two OBV bottoms are rising and the PMO is headed for a crossover BUY signal in neutral territory.
The toughest area of overhead resistance (now support) was overcome a second time. This time, price has been holding above it. The PMO looks great and is not overbought.
NVIDIA Corp (NVDA) - Earnings: 2/12 - 2/17/2020
NVDA has been in a rising trend channel for most of the fall. The PMO is moderately overbought. The OBV kind-of confirmed the gap up with a slightly higher reading. The OBV bottoms are rising, which is positive. The SCTR has been holding above 75, which shows internal strength.
I didn't see any major overhead resistance that was broken recently except for the late 2018 top. What interests me most is the strong PMO and the large bullish double-bottom pattern, which would suggest a move to challenge all-time highs.
Full Disclosure: I do not own any of the stocks above and I'm not planning on adding any at this time. I'm currently about 80% in cash.
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Technical Analysis is a windsock, not a crystal ball.
NOTE: The stocks reported herein are from mechanical trading model scans that are based upon moving average relationships, momentum and volume. DecisionPoint analysis is then applied to get five selections from the scans. The selections given should prompt readers to do a chart review using their own analysis process. This letter is not a call for a specific action to buy, sell or short any of the stocks provided. There are NO sure things or guaranteed returns on the daily selection of "diamonds in the rough."
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