Playing the Patience Game

Further selling, albeit far less intense than what we saw Friday, in the broad market this morning offsets what bulls hoped would be a Mueller report rally. Instead, the overhang of global growth concerns coupled with possible end of quarter seasonal weakness continues to blunt the upside momentum we saw in various tech plays throughout last week. 

We are essentially playing the patience game now, observing whether some extended monster winners in leading sectors can stabilize anytime soon to offer up lower risk swing long entries. While not assuming that will be the case, per se, given the explosiveness of some of the moves in software, cybersecurity, medical tech and healthcare names it would behoove us to at least give bulls a fair chance to see if another round of setups emerge into April.

After all, markets typically do not immediately crash after numerous growth name rally all at once. Instead, weakness often begets more weakness leading up to a complete market meltdown, which means bears would need to string together many more sessions like last Friday in order to begin to materially damage the rally since Christmas 2018.

That said, the small cap weakness in the IWM ETF remains a concern, and has slowed my aggressiveness down considerably. A bright spot continues to be precious miners, steadily improving and absorbing each pop in the U.S. Dollar. 

But when we stalk winning stocks setting up for potential new entries, the emerging diagnostics winner in healthcare, Guardant Health, serves as a clean example.

GH more than doubled since February, an incredible feat indeed. Today marks the stock's first 20-day moving average (orange line on daily chart, below) test by price since that run-up began. As we noted last week, the volume pattern (bottom pane) since favors bulls. And despite the 25% or so correction off the highs, GH does not look like a chart crashing and burning. 

In fact, if this end of quarter market selling abates soon, I would argue GH presents a compelling buy provided that we now see actual signs of stabilization, meaning buyers moving in to place a floor underneath the stock. Simply put, the down 4-5% days need to stop soon, and a few days of sideways basing followed by a push higher would be ideal.

GH is just one example of the types of names we are stalking with Members into April. But it may be for naught if small caps fail to stabilize in their own right. So, tracking this market's moving parts remains vital to swing traders.