It’s been a rough year for the market so far, but things may be starting to turn around.
I’ve been waiting for a follow-through day to confirm that the low may finally be in for the market.
And last week, we got one.
If you’re not familiar with the term, I define a follow-through day as a 2%+ gain in the cash index in a day on increased volume over the previous session.
That previous session doesn’t have to be an up day, but the follow-through day must be up 2% or more from the previous day’s close.
And the volume must be higher than the previous day.
Well, the S&P 500 index closed higher by 2.24% last Wednesday on increased volume.
While a follow-through day is not a guarantee that stocks have bottomed, it greatly increases the chances of the market rallying from here.
Personally, I am increasing my exposure in stocks from 10% to around 25%, and I will quickly buy more if my trades show gains.
I try not to over-complicate it… If breakouts work and my next three to four trades are profitable, I will increase my size on the next four or five, and so on.
Right now, we are seeing the same stocks show the most strength, including mainly the energy, steel, basic materials and shipping groups.
Most of these sectors are likely to perform well with high inflation, so it is not entirely surprising that this is where money is flowing at the moment.
The major indexes are still below their 50- and 200-day moving averages, so we don’t want to dive head-first back into the market with all of our capital.
But if the low has been made, conditions will continue to improve, and more stocks will begin making new highs.
For now, we’ll take things one day at a time with this week’s Watchlist stocks…
Danaos Corporation
Danaos Corporation (DAC) is a $2.2 billion, Greece-based marine shipping and transport company.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my Stock Surge Indicator (SSI)…
- Surge score: 98/100
- % Above 52-wk low: 143%
- Sales growth: +80%
- Return on Equity: 23%
- Triple momentum: yes
Shipping stocks are showing a lot of strength in this market.
Many of them are already extended past a reasonable buy point, but Danaos is just breaking out of a new cup with handle pattern.
DAC has been something of a “Cinderella story” over the last two years.
In March 2020, it traded for $2.50 a share. As of this writing on Friday, the stock is trading at the $104 level – a gain of over 4,000%.
As long as DAC doesn’t get too far past the breakout level, I think this is a good buy here.
Crane Co.
Crane Co. (CR) is a $6 billion manufacturer of industrial products for a wide range of markets, including commercial and military aerospace, oil and gas and even wastewater applications.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my SSI…
- Surge score: 90/100
- % Above 52-wk low: 27%
- Sales growth: +13%
- Return on Equity: 23%
- Triple momentum: yes
I added Crane to the Watchlist last week, noting its tight 14% trading range over the last five months.
Shares continued to show strength last week, and the stock’s surge score improved from 85/100 to 90/100.
CR is now inches from new high ground, and I think it is a buy once it clears $109.
Place a stop near the 200-day moving average in case it fails.
Reliance Steel & Aluminum Co.
Reliance Steel & Aluminum Co. (RS) is an $11.6 billion metals provider for a variety of customers, including those in the aerospace, transportation and even semiconductor industries.
Here’s how the chart is setting up…
And here’s how the stock is setting up with my SSI…
- Surge score: 94/100
- % Above 52-wk low: 40%
- Sales growth: +87%
- Return on Equity: 25%
- Triple momentum: yes
Steel stocks continue to perform well, and Reliance is the best name in the group.
It has strong earnings and sales growth, high relative strength and a big return on equity – all the signs of a top-tier stock.
After making a nice move higher in February, RS has been consolidating all month in a nice and tight 8% range.
Consider buying new highs with a stop at the swing low near $178.
Before I go, you’d like a step-by-step walkthrough on how to best take advantage of trades like these…
Be sure to check out my recent article, How to Follow My Weekly Trades, to know where I’m buying so that you can follow along.
Embrace the surge,
Ross Givens
Editor, Stock Surge Daily
The post Watchlist Update: We Just Got the Signal We Were Waiting For appeared first on Stock Surge Daily.
