Growth stocks are outperforming value stocks
The chart below confirms what we’ve seen over the past two weeks. Growth stocks have been favored in the trading room, as the upper panel confirms. The ratio between IGX (growth stocks) and IVX (value stocks) is rising fast. This tells me that IBD50 candidates are a good choice for breakout trades over the coming weeks. If fund managers are back from vacation and looking to outperform the market, they need look no further than the growth stocks listed in the pages of Investors Business Daily. Each candidates competitors should also be exhibiting similar characteristics as growth stocks are bought up by fund managers.
The IBD50 List is an weekly screen of leading growth stocks, which reflect strong relative price strength and top-notch fundamentals.
The stocks below are on my short list. Some have already broken out. Potential candidates show price moving above the 9/20ema, along with MACD, RSI and stochastic leading the way. Provided these criteria are present, your odds of success are much higher.
AOS, BIIB, ELLI, GIMO, GRUB, IPHI, MCHP, MXL, NVDA, PAYC, ULTA, VIPS, WOR, ZBH.
YRD exhibits the criteria we are looking for in any growth stock candidate. Look for an obvious pattern breakout on above average volume, where price triggers a SAR buy signal. This should be followed by a move above the 9/20ema. If the candidate is exhibiting a trending RSI pushing through or above 50 all the better. Finally, as YRD shows, an added benefit is stochastic pointing higher, accented with a MACD bull cross. This was one of the best 10e/STO/MACD setups we’ve seen in some time. Our entry was prompted by an alert in the room at or near 22.00 ~22.60. You can thank Ron.
Biogen is another beautiful setup from the 9-18-2016 weekend watch list that carried over into this week. RSI is trending, with price above the 9/20ema. MACD has crossed and shows signs momentum could pick up soon. Watch for MACD to move away from its signal line. Stochastic should turn. EPS 10/26/16.
GIMO is from the 05/01/2016 watch list, which had an original buy point of 32.50 or better.
Gigamon (GIMO) is breaking out of a tight flag, after a 22 point run from the original entry point the first week of May. This is a shining example of what’s great about these IBD50 growth stocks. They go on to outperform the markets by a wide margin over the weeks and months that follow. Note the momentum inherent in MACD slope and the above average volume spikes. Look for these traits in your next setup.
GRUB is exhibiting similar characteristics. RSI is near overbought so this one is a short term swing candidate until it resets more like YRD. Note the narrow Bollinger bands. The closer RSI is to 70 the more likely failure can occur. Exceptions to the rule, when RSI embeds above 70, suggest super strong momentum. Note the amount of time GRUB has spent above 70 in the past four months, with a 100% gain the resulting outcome. Not bad.
IPHI was the top performer, with semiconductors emerging as 4 of the top 10 candidates from the IBD50 list today. RSI suggests more to come from this stock. MACD is just crossing, similar to what we saw on YRD earlier on Tuesday. IPHI has been on a buy signal for over a week.
MCHP is another name with exceptional character, similar to the stocks above. RSI should start trending if price continues higher out of this triangle pattern. Fresh 52 week highs seem likely.
MXL is ready, after two recent encounters with the 200ma. Note VBP support just under todays low and resistance overhead. RSI is trending along with MACD, with the latter pushing above zero line. My stop would be just inside the recent highs (19.50) if the stock breaks above 20.00 this week.
Check the other stocks listed at the beginning of this post for similar characteristics. Also check the earnings dates on the watchlist. If all goes well on Wednesday, SPY, NDX and IWM will continue to lift higher into the final days of September and growth stocks will continue to outperform.
SPECIAL NOTE: I’ll be out on Wednesday.
My dermatologist is removing a small blemish from my cheek, the result of all those years surfing in Hawaii. Now I’ll finally pay the price. I’ll be fine, but won’t be around to cheer you along in the trading room until later in the evening.
Good luck – Vinny
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