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Bears In Hibernation as Bulls Fight Back

A week ago, market bulls were still reeling from a sharp Black Friday selloff that took the S&P 500 down 2.3%.

Over the following three sessions, the index saw two more relatively big drops of 1.9% and 1.2%.

Traders panicked…

The S&P 500 Volatility Index (VIX) spiked over the 35 level, the highest reading since early February.

As regular readers know, the VIX is known as the market’s “fear gauge.”

It tends to rise when the market falls, and it tends to fall when the market rises.

Now, sure, there are legitimate reasons to worry about the stock market right now…

As I’ve been telling you, individual stock participation is low, which could be a warning sign.

There’s also still the potential for inflationary pressures to hit stocks further.

But the move in the VIX was just plain excessive for what was ultimately just a 5% drop in the market over the course of two weeks.

Daily Chart of S&P 500 Volatility Index (VIX) — Source: TradingView

As you can see in the chart above, the fear gauge has pulled back sharply as the panic has subsided and the S&P has regained nearly all of its lost ground.

In fact, as of this writing, the S&P 500 is on the verge of setting a new all-time weekly closing high. That would be a very bullish sign.

But it doesn’t mean that a rising tide is going to lift all boats, however.

Remember… We are approaching the end of the year, when fund managers have to report their holdings to investors.

The last thing a manager wants is for new investors in the fund to learn they were holding underperforming stocks.

As I told you last week, managers tend to sell their worst performers so that they are off the books for next year’s prospectus.

This causes the stocks that have performed the worst during the course of the year to sell off even further in December.

So, I continue to stress that this is not a time to be overly aggressive, especially if you are new to trading.

Instead, we are going to focus on finding good setups with signs of institutional buying and low-risk entry points.

And from the research I’ve done this week, I’ve come up with three of those setups for you today. 

Applied Materials, Inc.

Applied Materials, Inc. (AMAT) is in the semiconductor wafer market. This is ground zero for semiconductor manufacturers that absolutely can’t make another chip without wafers.

I’m sure you’ve heard about the current chip shortage and high demand… AMAT is where the chips start, so all of the unfilled chip orders means more orders for the company’s wafers.

Here’s how the chart is setting up:

Daily Chart of Applied Materials, Inc. (AMAT) — Source: TC2000

And here’s how the stock is setting up with my Stock Surge Indicator (SSI):

  • Surge score: 92/100
  • % Above 52-wk low: 75%
  • MFI reading: 36
  • Sales growth: +31%
  • Triple momentum: yes

After forming a huge base that started in April, AMAT finally cleared its $145 resistance level.

But recent weakness gave us a retest of that price on a shallow pullback to what has now become support.

Look to buy on new highs with about a 6% risk on the trade.

Amphastar Pharmaceuticals, Inc.

Amphastar Pharmaceuticals, Inc. (AMPH) is a $1 billion specialty pharmaceutical company focused on both generic and proprietary injectable, inhalation and intranasal products for a variety of ailments.

Here’s how the chart is setting up:

Weekly Chart of Amphastar Pharmaceuticals, Inc. (AMPH) — Source: TC2000

And here’s how the stock is setting up with my SSI:

  • Surge score: 83/100
  • % Above 52-wk low: 78%
  • MFI reading: 71
  • Sales growth: +34%
  • Triple momentum: yes

I’ve chosen to use a weekly chart of AMPH above rather than a daily chart to show the size of the enormous base formation.

The stock quickly recovered from last year’s COVID selloff, but the shares have gone nowhere ever since.

A new 52-week high would be a strong buy signal for what could be a longer-term move.

Civitas Resources, Inc.

Civitas Resources, Inc. (CIVI) is a $5 billion oil and gas exploration and production company.

It has operations on half a million net acres in the Denver-Julesburg Basin and produces roughly 160,000 barrels of oil equivalent a day.

Here’s how the chart is setting up:

Daily Chart of Civitas Resources, Inc. (CIVI) — Source: TC2000

And here’s how the stock is setting up with my SSI:

  • Surge score: 97/100
  • % Above 52-wk low: 207%
  • MFI reading: 63
  • Sales growth: +223%
  • Triple momentum: yes

CIVI is seeing huge triple-digit sales and earnings growth over the last two quarters.

The energy sector has been the top-performing market segment in 2021, and Civitas Resources is an example of that market-leading strength.

This stock makes fairly severe pullbacks, with the last one notching a decline of around 20%.

I’m looking for shares to tighten up further from here, but I’d be a buyer at new highs whether it happens this week or six weeks from now.

Lastly, if you’d like a step-by-step walkthrough on how to best take advantage of these weekly trades…

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 GivensEditor, Stock Surge Daily

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Ross Givens
Ross Givens

I bought my first stock when I was 12 years old. It was Microsoft. I’ve been a registered financial advisor. I’ve worked as a stock broker. I ran a managed fund. I was a Vice President at JP Morgan with Series 7, Series 66 and Series 3 securities licenses. I’ve been featured on Fox Business, CNBC, Bloomberg, and a bunch of other networks. The only thing I enjoy more than making money, is helping YOU make money.

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