Major averages rose yesterday on higher volume as the NASDAQ Composite regained its prior new-high breakout. However, the odd divergence persists as the S&P 500 and the Dow both remain well below their 50-day moving averages and more or less stuck within 2 1/2 week bear flags after the initial September 9th sell-off from the highs.
Despite the index confusion, the action of individual stocks has offered a more coherent picture. A number of stocks on our Focus List had pocket pivots in yesterday's trade, but as we have generally advised, it is better to buy on constructive weakness so you limit your downside risk. Indeed, a number of names on the list have had such pullbacks so could have been recently bought.
For example, we recently wrote in Market Lab Report - Premarket Pulse 9/23/16 at 9:13 am ET:
Others such as MOMO, LN, and WB are still near support. Stocks such as PI may need more time to digest prior gains but should nevertheless be monitored for constructive pullbacks to prior areas of support. In general, investors should avoid buying into strength and instead seek to pick up shares of leading stocks on constructive pullbacks.
We mentioned MOMO on Monday in the Focus List update. LN gapped higher so could be considered a buyable gap up, though its earlier buy point was at the time we sent the report on 9/23/16 when it was still close to support. WB also pulled back to its 20-day line and posted a pocket pivot yesterday as it moved to new highs. PI pulled back to its 20-day line on Monday then bounced.
Of note: Pullbacks allow for lower-risk entry opportunities, not "no-risk" entry opportunities. If one purchases shares near a potential area of support such as a major moving average or the top of a prior base, for example, then that should be used as a guide for a tight downside stop. This is of paramount importance, and stops should be adhered to since it is never clear how far and how long any market pullback will continue.