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Market Insights

Bringing you the trading news around the world.

Here’s How to Be Ready the Next Time Momentum Stocks Pull Back

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Stocks had a dramatic and fast pullback this week. Here’s an example of ways to find pullbacks when something like this happens.

The screenshot below shows members of the Nasdaq-100 that pulled back to test their 20-day moving averages on Tuesday. This can be a simple and effective way to find dips in upward-trending stocks.

RadarScreen® with select studies and qualifying members of the Nasdaq-100 index.
RadarScreen® with select studies and qualifying members of the Nasdaq-100 index.

The list is generated by RadarScreen® using the custom indicator “MA test.” If a stock’s low price is under the MA and its high is above the MA, the code prints the MA in question. Its logic goes a step further by color coding the output if the MA is rising (green) or falling (red).

Follow these steps to replicate this scan:

  • Import the ELD file from this zip archive.
  • Open RadarScreen and add the following studies:
    • MA test
    • Industry
    • Market Cap
  • Click on Data –> Add Symbol List –> Nasdaq-100
  • Select all the symbols (control-A) and change the Timeframe to Daily
Microsoft (MSFT), daily chart, with 20-, 50- and 200-day moving averages.

Microsoft Pulls Back Before Earnings

After RadarScreen populates, you can double click on “MA test” to sort by that column. Then delete all the symbols that don’t say “20MA+”. Then re-sort by Market Cap.

Software giant Microsoft (MSFT) topped the list yesterday afternoon. It reported better-than-expected earnings and revenue on April 29 after coronavirus spurred huge demand for IT services and cloud computing. That trend has only continued since, creating a dramatic division between new-economy tech stocks and everything else.

MSFT’s next quarterly report is in exactly one week, after the closing bell on July 22.

Here are some other noteworthy companies on the scan:

  • Facebook (FB): The market’s fifth most valuable company reports earnings on July 27.
  • JD.com (JD): The Chinese e-commerce stock has ridden a wave of bullishness in the country’s tech sector.
  • PayPal (PYPL): The online payments company has gained market share during the coronavirus pandemic, flying to new highs while MasterCard (MA) and Visa (V) have drifted aimlessly.
  • Amgen (AMGN): The biotech giant recently broke out after winning an important patent case.

Want to learn more? Check out my webinar, “Are You Ready for FANG Earnings?” next Tuesday, July 21.

JD.com (JD), daily chart, with 20-, 50- and 200-day moving averages.
JD.com (JD), daily chart, with 20-, 50- and 200-day moving averages.

About the author

David Russell
David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.

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