After the poor action the last couple days it is nice to see things slow down a bit. The good news is that we are finally seeing some resets in charts that have become extended. One of the problems with trading super-momentum names is that they can come down just as quickly as they went up. It can be very tricky to find good entry points.
The three most popular momentum stocks recently have probably been Yirendai (YRD) , Acacia Communications (ACIA) and Twilio (TWLO) . All three are now substantially off their recent highs and trying to find new support levels.
Typically, stocks such as these have a contingent of buyers that are anxious to catch another ride. There were usually good reasons for their strength and their stories haven't changed much.
ACIA, for example, has an EPS estimate of $2.68 for 2016 and $3.10 for next year. Even at the current price around $104 that isn't an outrageous valuation, especially if the company can deliver some upside and bring estimates higher.
The only way to really play stocks like this for a bounce is to find some rough support level and then average in slowly as it develops. ACIA bounced off the $100 level and YRD hit support almost perfectly at its 50-day simple moving average. TWLO is still coming in but could find some interest at the obvious psychological level of $50.
As we await Janet Yellen's Jackson Hole speech it has been interesting to read some of the articles by folks such as Jon Hilsenrath of the Wall Street Journal. Hilsenrath is considered to be someone who 'leaks' information for the Fed so it is particularly notable that his article today focused so much on how Fed policy has failed. If his article is intended to be a hint of some shift in what the Fed is doing then Yellen's speech may offer some drama.
Although market players have been complaining about the ineffectiveness of the Fed for years that issue is becoming more prominent. There isn't any easy fix but maybe it will provide the market was some increased volatility. As a trader nothing is better than more movement.
