While most investors are running for the exits, savvy traders are quietly building watchlists of stocks showing remarkable resilience. These hidden gems often become the explosive leaders of the next bull phase.
When markets turn choppy and the majority of stocks are getting hammered, there’s a golden opportunity hiding in plain sight. Rick Pedicelli from Morpheus Trading Group recently shared invaluable insights on how to identify stocks that are bucking the trend during the current market correction – and why these resilient performers could be your ticket to exceptional gains when the next rally begins.
The broad market is currently in correction mode, with the Nasdaq Composite sitting roughly 15-16% off its highs. While this might seem like a time to retreat, experienced traders know that corrections within strong uptrends are not only healthy but essential. More importantly, they create the perfect environment to spot the next generation of market leaders before they explode higher.
The Current Market Landscape: Understanding the Correction
Before diving into specific opportunities, it’s crucial to understand where we stand in the current market cycle. The Nasdaq Composite’s weekly chart tells a clear story: we’re below the uptrend line, trading beneath the 40-week moving average, and sitting below both the declining 10 and 20-week moving averages. This technical picture confirms we’re in the midst of a significant correction.
However, this isn’t a bear market scenario. We’re looking at a pullback within a robust multi-year uptrend, which makes all the difference. These types of corrections serve as healthy consolidations that set the stage for the next leg higher. The key is knowing where to look while everyone else is panicking.
The Power of Relative Strength Analysis
Relative strength is perhaps the most powerful concept in technical analysis during market corrections. This isn’t about whether a stock is going up or down in absolute terms – it’s about how a stock performs compared to the broader market. When the Nasdaq is making new lows but certain stocks refuse to follow suit, that’s relative strength in action.
Stocks displaying relative strength during corrections often share several characteristics: they hold above key moving averages while the market breaks below them, they refuse to make new lows when the indices do, and they often consolidate in constructive patterns that set up powerful breakouts once market conditions improve.
Five Stocks Showing Exceptional Relative Strength
GEO Group (GEO): A Cup-and-Handle Formation in the Making
GEO Group presents a textbook example of relative strength. While the Nasdaq Composite trades below its 10-week moving average and the QQQ ETF continues making new lows, GEO remains above its 10-week MA and has refused to set new lows alongside the broader market.
The stock appears to be forming the handle portion of a cup-with-handle pattern – one of the most reliable bullish continuation patterns in technical analysis. A cup-with-handle formation occurs when a stock consolidates in a rounded bottom (the cup), followed by a smaller consolidation (the handle) before breaking out to new highs.
What makes GEO particularly attractive is its proximity to all-time highs. Trading just below the $36 level, a breakout above this resistance would send the stock into uncharted territory with no overhead resistance – what traders call “blue skies above.”
Amer Sports (AS): New IPO with Breakout Potential
AS represents the power of newly public companies when they display relative strength. This relatively new IPO from early 2024 recently pushed to new highs on decent volume before pulling back to test its 20-day exponential moving average (EMA).
The 20-day EMA is crucial for momentum stocks as it often acts as dynamic support during pullbacks. AS has shown it won’t make lower lows with the QQQ, demonstrating the kind of relative strength that often precedes major moves. The stock faces downtrend line resistance and pressure from the declining 10-week moving average, but a push above the $30 level could signal the beginning of a significant move higher.
Alibaba (BABA): Breaking Multi-Year Resistance
Chinese ADR Alibaba delivered one of the most explosive moves of the quarter, blasting through a three-year trading range by pushing above the $120-$130 resistance zone. The stock stalled just below $150 but is now pulling back to test its rising 10-week moving average – a sign of healthy consolidation rather than weakness.
An ADR (American Depositary Receipt) represents shares of foreign companies trading on U.S. exchanges. BABA’s ability to break multi-year resistance while the broader market corrects demonstrates exceptional relative strength. The rising 10-week moving average provides dynamic support, and as long as the stock holds above this level, it remains positioned for another leg higher when market conditions improve.
MicroStrategy (MSTR): Bitcoin Proxy Finding Support
MSTR has experienced a deeper correction than the other stocks mentioned, falling approximately 60% from its highs. However, it’s shown remarkable relative strength in recent weeks by holding above a critical support level: the rising 40-week moving average.
The 40-week moving average often serves as major support for stocks in strong uptrends, and MSTR has respected this level consistently since 2023. Multiple touches and bounces off this moving average create what technicians call a “line in the sand” – a level that, if held, suggests the underlying trend remains intact.
As a Bitcoin proxy, MSTR’s performance is closely tied to cryptocurrency movements. If Bitcoin can regain momentum and MSTR clears its downtrend line resistance above $320, the stock could quickly return to favor once market conditions stabilize.
iShares Silver Trust (SLV): The Actionable ETF Opportunity
SLV stands out as potentially actionable even in current weak market conditions. This silver trust ETF has maintained a solid uptrend and is attempting to break out from a base that has held above the 40-week moving average.
Commodity ETFs like SLV often provide diversification benefits during market corrections, as precious metals can move independently of equity markets. The weekly chart shows SLV above its rising 10-week moving average while the QQQ trades below its equivalent level – classic relative strength behavior.
The underlying silver futures market shows a consolidation pattern just below recent highs around the $33 area. As long as silver holds above this level, the potential for a breakout remains strong, making SLV an interesting play for traders looking to diversify beyond traditional equity positions.
Key Technical Concepts Explained
Moving Averages: These are trend-following indicators that smooth out price data by creating a constantly updated average price. The 10, 20, and 40-week moving averages serve as dynamic support and resistance levels. When a stock trades above its moving average, it’s considered bullish; when below, it’s bearish.
Cup-and-Handle Pattern: This is a bullish continuation pattern that resembles a tea cup when viewed on a chart. The “cup” is a rounded bottom consolidation, while the “handle” is a smaller pullback that typically lasts 1-5 weeks before the breakout occurs.
Relative Strength: This measures how a stock performs compared to a benchmark (usually the S&P 500 or relevant index). Stocks with strong relative strength outperform during market advances and hold up better during declines.
Building Your Watchlist Strategy
The stocks mentioned represent just a starting point for building a relative strength watchlist. The key is identifying stocks that refuse to follow the market lower or that show constructive consolidation patterns during the correction.
However, flexibility remains crucial. Sometimes the best opportunities come from stocks that haven’t shown obvious relative strength but suddenly explode 10-20% higher over four to five days as they emerge from correction lows. These momentum breakouts can be even more powerful than the obvious relative strength plays.
Risk Management and Market Timing
While these stocks show promise, timing remains everything in trading. In the current environment, it’s better to wait for overall market conditions to stabilize before taking aggressive positions. Even the strongest relative strength stocks can get caught up in broad market selling if conditions deteriorate further.
The ideal scenario involves waiting for signs that the market correction is ending – perhaps through a successful test of key support levels, improvement in market breadth indicators, or a shift in sector rotation patterns.
Key Takeaways for Traders
Successful trading during market corrections requires a different mindset than bull market strategies. Instead of chasing momentum, focus on identifying quality setups that will perform when conditions improve. Build watchlists now while others panic, but remain patient about entry timing.
Remember that corrections don’t last forever, and the best traders use these periods to position themselves for the next advance. The stocks showing relative strength today often become tomorrow’s market leaders, delivering the kind of portfolio-transforming gains that make the difference between average and exceptional performance.
Most importantly, keep an open mind about where opportunities might emerge. While the stocks discussed here show promise, the market has a way of surprising even experienced traders. Stay flexible, manage risk carefully, and always be ready to adapt as conditions change.
The current correction is creating opportunities for those willing to do the work of identifying tomorrow’s leaders today. By focusing on relative strength and building quality watchlists, you’re positioning yourself to capitalize when the next bull phase begins – while others are still trying to figure out what happened to their portfolios.
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