When stocks are in steep uptrends, it can difficult be difficult to determine when a meaningful corrective move is going to take place. We all want to capture as much of the uptrend as possible, especially when momentum is strong, but there is risk inherent to steep uptrends, which makes it important to have a “sell discipline” for profit taking. We have seen many steep uptrends take hold in this momentum-driven tape, especially in some of the market’s largest stocks like Microsoft, Nvidia, Amazon, Meta, Berkshire Hathaway, Eli Lilly, Broadcom and JPMorgan Chase. Therefore, it is important to have a plan for how to deal with stocks that have “gone parabolic,” meaning the momentum behind their uptrends has accelerated. A 20-day moving average (MA) can be helpful as a gauge of short-term momentum, in general. It is especially useful in helping us stay on the right side of steep uptrends. Two examples of steep uptrends are Meta (Meta) and Nvidia (NVDA) , both of which are pictured below. Quite simply, when the 20-day MA is pointing higher, as it is currently for NVDA and META, it supports holding existing exposure. When the 20-day MA turns lower after having pointed higher for a long period of time, it is a sign that momentum is waning and that the stock is due for a significant pullback. Looking back, for both NVDA and META, the 20-day MA rolled over in early August 2023, which preceded intermediate-term corrective phases in the third quarter of last year. We include the Ichimoku cloud model on the charts because it can be a good gauge of initial downside risk in steep uptrends. The cloud worked particularly well on the chart of META during its corrective phase, and it resulted in initial support discovery for NVDA in early August at the onset of its correction. The 50-day MA is another helpful way to gauge initial support in uptrending stocks. As a general rule, we advise reducing partial exposure when the 20-day MAs roll over after steep upmoves. The percentage reduction should keep in mind how the stock fits into an overall portfolio. A breakdown below support from the cloud model and/or 50-day MA can be a catalyst to sell stocks, often with the intention of revisiting them once they become oversold again from an intermediate-term perspective. —Katie Stockton with Will Tamplin Access research from Fairlead Strategies for free here . DISCLOSURES: THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer. Fairlead Strategies Disclaimer: This communication has been prepared by Fairlead Strategies LLC (“Fairlead Strategies”) for informational purposes only. This material is for illustration and discussion purposes and not intended to be, nor construed as, financial, legal, tax or investment advice. You should consult appropriate advisors concerning such matters. This material presents information through the date indicated, reflecting the author’s current expectations, and is subject to revision by the author, though the author is under no obligation to do so. This material may contain commentary on broad-based indices, market conditions, different types of securities, and cryptocurrencies, using the discipline of technical analysis, which evaluates the demand and supply based on market pricing. The views expressed herein are solely those of the author. This material should not be construed as a recommendation, or advice or an offer or solicitation with respect to the purchase or sale of any investment. The information is not intended to provide a basis on which you could make an investment decision on any particular security or its issuer. This document is intended for CNBC Pro subscribers only and is not for distribution to the general public. Certain information has been provided by and/or is based on third party sources and, although such information is believed to be reliable, no representation is made with respect to the accuracy, completeness, or timeliness of such information. This information may be subject to change without notice. Fairlead Strategies undertakes no obligation to maintain or update this material based on subsequent information and events or to provide you with any additional or supplemental information or any update to or correction of the information contained herein. Fairlead Strategies, its officers, employees, affiliates and partners shall not be liable to any person in any way whatsoever for any losses, costs, or claims for your reliance on this material. Nothing herein is, or shall be relied on as, a promise or representation as to future performance. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Opinions expressed in this material may differ or be contrary to opinions expressed, or actions taken, by Fairlead Strategies or its affiliates, or their respective officers, directors, or employees. In addition, any opinions and assumptions expressed herein are made as of the date of this communication and are subject to change and/or withdrawal without notice. Fairlead Strategies or its affiliates may have positions in financial instruments mentioned, may have acquired such positions at prices no longer available, and may have interests different from or adverse to your interests or inconsistent with the advice herein. Any investments made are made under the same terms as nonaffiliated investors and do not constitute a controlling interest. No liability is accepted by Fairlead Strategies, its officers, employees, affiliates, or partners for any losses that may arise from any use of the information contained herein. Any financial instruments mentioned herein are speculative in nature and may involve risk to principal and interest. Any prices or levels shown are either historical or purely indicative. This material does not take into account the particular investment objectives or financial circumstances, objectives or needs of any specific investor, and are not intended as recommendations of particular securities, investment products, or other financial products or strategies to particular clients. Securities, investment products, other financial products or strategies discussed herein may not be suitable for all investors. The recipient of this information must make its own independent decisions regarding any securities, investment products or other financial products mentioned herein. The material should not be provided to any person in a jurisdiction where its provision or use would be contrary to local laws, rules, or regulations. This material is not to be reproduced or redistributed absent the written consent of Fairlead Strategies.
