Stocks began to stall last week with somewhat choppy action in the major indexes.
This is not a surprise.
I pointed out last week that the S&P 500, represented by the SPDR S&P 500 ETF Trust (SPY) below, is right at the 200-day moving average.
This is an area where we could easily see a pullback of 5%-10%.
The market has rallied hard since late July, so it is only natural to expect some profit-taking and for stocks to take a breather.
We have not seen this yet, but don’t be surprised if we get a negative week or two from here.
Until we see signs of institutional selling, however, I will continue to focus on stocks to buy.
Here are three names I’ll be watching this week…
Dollar General Corporation (Long Idea)
Dollar General Corporation (DG) is setting up in a textbook volatility compression pattern.
Notice how the pullbacks get shallower from left to right, shrinking from 30% to just 4%.
This is a visual representation of the market working through sell orders and a sign that supply is no longer coming to market.
We also have clearly defined resistance near the $260 area.
If DG breaks out to new highs, it could see a strong rally to the upside from here.
Resources Connection, Inc. (Long Idea)
Resources Connection, Inc. (RGP) provides accounting, finance, and human resources consulting services from 63 offices across the country.
This sector of the market is currently very strong, ranking in the top 7% of all groups.
After forming a large base from November to June, shares surged on huge volume to advance 20% in a week.
Price has then tightened again and formed a wedge pattern that I’ve outlined in the chart above.
This stock is also seeing a lot of accumulation volume.
The big green volume bars on the bottom of the chart are signs of institutional buying, which we know is the true driver of stock prices.
Watch for a move above $44, as this could trigger the next surge higher in RGP.
Daqo New Energy Corp. (Long Idea)
Regular readers know that solar stocks are my favorite sector of the market right now.
It is the number-one group in terms of relative strength, and we have seen big advances in several of these names.
Daqo New Energy Corp. (DQ) is a Chinese manufacturer of the polysilicon products used to make solar panels.
The fundamentals are off the chart. Sales are up 367%, 60%, 400% and 182% in each of the last four quarters with huge increases in bottom-line profits as well.
I see two potential ways a trader might want to play this stock…
The first would be to buy here in the $66 area off the 50-day moving average (red line on chart).
Those who would rather wait for confirmation of the breakout might consider buying on a move above $72.25.
Fly Under the Radar
Institutional investors like pension funds, mutual funds, hedge funds and other large players make massive institutional buys that fly under the radar of most individual investors.
But if you know how to spot those buys in real time, you can potentially follow the big money to big gains.
This is what I focus on inside my premium Stealth Trades research service.
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Embrace the surge,
Editor, Stock Surge Daily