The markets are seeing a continuation of last week's broadening out into areas beyond mega-cap FAANMG names. Most of the biggest gainers have been beaten-down stocks regaining their footing amid a move back into Cyclical areas of the market. The rally in these stocks began after last Friday's May employment data showed that job openings rose higher than expected while wage gains were modest. The report helped reduce fears of a recession.
Today, I'll be sharing the key characteristics of a stock as it successfully reverses its downtrend so that you, too, can participate in the upside potential as stocks begin entering a new uptrend.
DAILY CHART OF DATADOG (DDOG)
Above is a chart of Datadog (DDOG), which reversed its downtrend in early May. Subscribers to my MEM Edge Report will be familiar with this stock because that's when it was added to the Suggested Holdings List of my MEM Edge Report. Let's review some of the key traits.
First and foremost, DDOG reported strong earnings and sales, with management guiding growth estimates higher for the remainder of this year. This is a critical characteristic, as strong earnings are the primary driver of a stock that goes on to outpace the broader markets.
In response to the strong earnings, DDOG gapped up in price on heavy volume, in a move that put the stock above its key moving averages. The rally also pushed the stock's momentum indicators into positive territory, which is highlighted. You'll want to make sure that your stock is part of a strong Industry Group that's outperforming the broader markets. This is because studies show that Industry Group and Sector affiliation account for almost 50% of your stocks up or downward move.
Getting a majority of the traits highlighted above will be enough to provide conviction that further upside is ahead; however, you'll want to make sure the stock is fundamentally sound with positive momentum indicators, at the very least. Lastly, while we're currently seeing a broadening out of stocks that are advancing higher, investors will also need to be mindful of key economic data that has been known to move the markets.
Next Wednesday, the Federal Reserve will be announcing their rate hike policy, with Fed Chair Powell's press conference taking place immediately after. Most investors are looking for a pause in their rate hike campaign, so any surprise increase would not be good for the markets. In addition, core inflation data will be released on Tuesday and Wednesday, which may cause volatility depending on results.
If you'd like to be alerted to any shift in the market's current uptrend, as well as insights into the best areas to be investing, take a trial of my twice weekly report by using this link here. You'll be able to trial my MEM Edge Report at a nominal fee and gain access to prior reports as well!
Mary Ellen McGonagle, MEM Investment Research