Bullish – CRWD – $282.31

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Market Outlook:

SPY and QQQ ended last week at new all time highs once again after a strong performance on Friday to end the week 1.55% and 2.26% higher respectively. The much awaited event of last week was Fed Chair’s speech at Jackson Hols on Friday. The main takeaway from this event was that there will be a tapering of bond purchasing, but no change to the current interest rate plan. Jerome Powell remained resilient with having an accommodative monetary policy even when bond purchasing is ceased. In addition to tapering bond purchasing, September has historically been the worst month of returns for the S&P 500 with an average decline of 0.56%. There may be some cause for caution heading into this week for equities.

Watch Tony’s CRWD Trade Video on CNBC

CRWD Bullish Trade Idea:
Our bullish trade is Crowdstrike Holdings Inc (CRWD). Investors should note that this is an earnings play with CRWD announcing earnings this week. The expectation is for CRWD to post a strong quarter.  CRWD recently pulled back to $225 and bounced higher with strong momentum. Both 1M and 6M trends are bullish and with a technical score of 10 (out of 10), CRWD is a very strong stock that will likely continue higher. 

As this is a debit spread, look to take profits at 75%-100% gain and cut losses at 50%:

Take Profit: $18.38 – $21.00 Credit

Stop Loss: $5.25 Credit

Look to close the trade at 21 days to expiration if neither the take profit nor stop loss level has been reached. View CRWD Trade

Sector Outlook

The Relative Rotation Graph (RRG) for sector rotation indicates that there is healthy sector rotation but narrowing leadership with only 4 sectors in the Improving and Leading categories and 7 sectors in the Lagging and Weakening categories.

Leading (positive relative trend and positive relative momentum): Healthcare and Technology are the only sectors in the leading category with Technology showing strong momentum and providing leadership and Healthcare showing signs of slowing momentum. Look for further rallies in Tech sector stocks.

Weakening (positive relative strength and negative relative momentum): 4 sectors have moved to this category in the last week – Staples, Utilities, Financials and Materials. Defensive sectors are under pressure and sharp decreases in momentum for Materials and Financials have seen them transition from a leading sector to a weakening one. 

Lagging (negative relative trend and negative relative momentum): 3 sectors are in the lagging category – Discretionary, Industrials and Energy. However, Discretionary is showing signs of improving momentum which may see it move to the improving category. Look for further weakness in Industrials.

Improving (negative relative trend and positive relative momentum): Real Estate and Communications are in the improving category with both showing good momentum and relative strength

XLC

The Communication’s silent rally looks set to continue with price breaking above the $84 resistance level and moving higher. Look for a continuation of the rally with a retest of $84 providing a better risk/reward long entry.

XLI

Industrials remain rangebound with resistance at the $106 area and the outlook remains neutral. A break above $106 would invalidate this analysis. Support can be found between $102 and $100.  

Market Observations

  • NCLH – Price is at a key level of resistance at $26. A break above this level opens the door for a significant upside back to $34. 
  • EEM – Broke below the $51 support level and has come back to retest it. Bearish price action will confirm further decline but a break above $51 may see EEM rally back to $55 resistance.
  • IP – Showing signs of reversing momentum and a break above $60 would indicate a further rally back to $65

Tony Zhang