Momentum Monday - Consolidation time? Be A Little More Careful What You Own

Nothing goes straight up. It is normal to see the indexes pulling back to their 10 and 20-day moving averages after their strong push since May. It is exactly what happened last week. Small caps ETF, IWM had a bigger decline and is close to its 50-day moving average. The big leader this year, Nasdaq 100 (QQQ) is still above its 10-day moving average, which is another sign of relative strength – it barely pulled back. The fiscal quarter ends next week and we might see even more strength in big tech names due to window dressing.

Many stocks are already down 15-20% in the past 4 to 8 days in a row which in a bull market is a good potential for a bounce setup. Such dips to rising 20 and 50-day moving averages offer low-risk entry points, where we can risk $1 to potentially make $3 or more. I don’t like to buy weakness in an uptrend blindly. I prefer to see some evidence that buyers are coming back in control. At the very least, I want to see a stock trading above its previous day’s high or above the VWAP (volume-weighted average price) from its recent high.

Price action has started to slow down lately which is typical for the summer. I believe the overall uptrend in most large and mega-cap stocks is still firmly intact. The recent pullback is a consolidation and probably ends up as a good buying opportunity. The next earnings season is a whole month away, so it makes sense to focus on stocks showing relative strength and weakness for finding new ideas.

Bitcoin and Bitcoin-related stocks were on the move last week as the market is pricing in the potential approval of BTC ETF. The futures ETF was approved. The spot one is on its way. Bitcoin miners, MARA and RIOT are looking constructively on a weekly time frame. One cap considers them as longer-term position trade setups with a stop at last week’s low and a target 3-4x higher.