My preference is to trade strong stocks that are simply consolidating and ridding themselves of weak hands, hopefully just in time to ride the next wave higher. Software ($DJUSSW) has been consolidating for the past couple months and appears poised to rebound from its latest 50-day SMA test:
Software is close to its relative support line and this period of consolidation has led to the RSI dropping into its key 40-50 range. I didn’t annotate it, but if you look back at the recent price peaks, you’ll see lower PPO readings, resulting in a negative divergence. When these occur, I look for subsequent PPO centerline tests and/or 50-day SMA tests to “reset” momentum. Those have both essentially been accomplished during this period of profit taking.
Note that the volume really tailed off on the selling last week. Upcoming strength and a breakout could lead to a number of software stocks regaining strength from earlier in 2024. Here are two worth considering:
ServiceNow (NOW):
Informatica (INFA):
NOW has taken the normal path when its peer group is consolidating – consolidating right along with it. INFA, however, is threatening a breakout just as software is poised to regain strength. The fact that INFA is trying to break out at a time when money is rotating AWAY from software is particularly encouraging. But it does need to make the breakout first.
10 Solid Setups
This weekend, I provided a total of 10 breakouts/reversals/setups on our EarningsBeats.com YouTube channel. I’d love for you to check them out and leave me feedback in the comments section. Also, please “Like” our video and “Subscribe” to our channel while you’re there!
Educational Series
Last week, we started an April 4-pack Educational Series, providing lessons on candlesticks (Last Monday, April 8th – recording available), price support/resistance (today at 4:30pm ET), divergences (next Monday, April 15th at 4:30pm ET), and trading gaps (Monday, April 22nd at 4:30pm ET). If you’d like to access last Monday’s candlestick recording and register for the upcoming events, including today’s event, simply CLICK HERE.
Happy trading!
Tom
