The rebound from the October 4th low has been pretty amazing. The retail and financial sectors are up +15%. The NASDAQ composite is up +16%. The semiconductor index, transportation average, and the small cap Russell 2000 index are all up +18% or more. The OSX oil services index is up +24%. These are big moves in just nine trading days. The market trend is up but I would be very careful about launching new positions here. The market is overbought. If we want to see a healthy, sustainable advance then stocks need to see a correction.
This means we do not want to start new bullish positions with the market significantly overbought. The LEAPStrader newsletter is not adding any new trades tonight but we did add a couple of candidates to our watch list. Just because the market is overbought and needs to correct doesn't mean it will. Stocks can always grow more overbought, much to the dismay of the bears and anyone short the market.
In addition to our new watch list candidates, below is a list of stocks on my radar screen.
NVDA - It looks like shares have formed a bullish double bottom but the stock is trading just underneath resistance near $15.00. I'd rather wait for a pull back and buy a higher low, maybe a bounce near $14.00, but more aggressive traders may want to consider a breakout past $15.00. Just be aware that NVDA is very overbought.
MCD - This fast food stock has a very strong long-term trend. The last couple of months have been pretty choppy but shares are nearing their all-time highs. I would look for a close over $91.00 as a potential entry point for bullish positions. Readers should be aware that MCD is due to report earnings on Friday, Oct. 21st. I would hesitate to open positions prior to earnings even though I expect MCD to post strong numbers.
ATVI - This video game giant has rallied toward major resistance near the $13.00 level. Check out a long-term weekly chart over the past three years. Ideally I'd like to see ATVI consolidate sideways for another week or two and then breakout past resistance or even dip back toward $12.25 and rebound. Nimble traders could look to buy a dip. I'd wait for a convincing close over resistance near $13.00.
PETM - Shares look very short-term overbought with a run from $40 to $46. A breakout past $46.00 would be bullish and a new all-time high. I'd like to see it consolidate sideways for a few days first. Consider watching for a close over $46.50 before considering bullish positions.
LO - Investors looking for yield are drawn to LO's 5% dividend. Technically the breakout past the May highs is bullish and LO has already seen a pull back and bounce. I was tempted to buy it now. However, I am concerned the major indices are very overbought. Consider waiting for a dip into the $112.50 area before considering bullish positions.