As the oversold bounce in US stocks continues and the Russell 2000 and Nasdaq Composite moved to new all time highs in recent days, some key momentum stock darlings are pushing higher on good momentum. These stocks remain on technically solid footing, although their steep immediate-term slopes are concerning.
I am pointing out the following four tickers with the hopes of conveying how much market participants are chasing momentum stocks higher, which at the margin, at least near-term will sooner rather than later have negative implications for the broader market.
All four of the following stocks are due to report their earnings within the next three weeks, which must be kept in mind as these names are particularly prone to develop large up or down gaps post their earnings reports.
AMZN 7/26
GOOG 7/18
YELP 8/1
YHOO 7/16
Amazon.com, Inc. (AMZN) while breaking to new year to date and all-time highs last week, has now rallied 8% in 11 trading sessions. Clearly, momentum is on the side of the stock. I would however caution chasing a stock higher after seven consecutive green daily candles.
Google Inc, (GOOG), which is up around 4.60% since the June lows is now re-testing a resistance line dating back to the May highs. Any break above there and upside could accelerate.
Yelp, Inc (YELP), after a nice and clean breakout in late June settled into a consolidation period by way of a bullish wedge formation. The stock then staged a big 6% breakout on Tuesday, which may just give it enough momentum to move higher still. Note however that the higher probability trade has already come to pass with Tuesday’s breakout.
Last but not least, Yahoo! Inc (YHOO) rallied close to 10% since the June lows and thus, very similar to Google Inc, (GOOG), right back to a crucial resistance line dating back to the May highs.
To chase or not to chase, that is the question here as we cross these choppy waters. Particularly Yahoo! Inc (YHOO) and Google Inc, (GOOG) look enticing here on the long side, the risk/reward here is a very personal issue given that the earnings reports loom large.
