We continued to see weakness in the market. Carl and I believe this is the beginning of a harsh decline so we need to play defense or for more aggressive investors like yourselves, to consider shorting opportunities. In today's report I am presenting two inverse ETFs that should provide an excellent hedge under bearish circumstances.
However, there is a surprise long included today. I had no intention of providing symbols on the long side, but this ETF looked very good. Believe it or not, it is XBI, the Biotech ETF. I currently hold IBB which was a prior "Diamond in the Rough" this month and nearly sold it, but relative strength is returning to this group which tells me it should buck the bearish trend in the market.
Be careful out there. I've only exposed 28% and that is hedged 4%. I have two positions I'm watching like a hawk, ready to pounce on the sell button if necessary.
Good Luck & Good Trading,
Erin
Today's "Diamonds in the Rough": RWM, TAIL and XBI.
** JULY VACATION **
I will be in Europe 7/14 - 7/27 so there will not be any Diamonds reports or trading rooms during that time. All subscribers with active subscriptions on 7/27 will be compensated with two weeks added to their renewal date.
RECORDING LINK (4/28/2023):
Topic: DecisionPoint Diamond Mine (4/28/2023) LIVE Trading Room
Passcode: April#28
REGISTRATION for 5/5/2023:
When: May 5, 2023 09:00 AM Pacific Time (US and Canada)
Topic: DecisionPoint Diamond Mine (5/5/2023) LIVE Trading Room
Register in advance for this webinar HERE
After registering, you will receive a confirmation email containing information about joining the webinar.
Here is the last recording (5/1):
Welcome to DecisionPoint Diamonds, wherein I highlight ten "Diamonds in the Rough" per week. These are selected from the results of my DecisionPoint Scans which search for stocks that could benefit from the trend and condition of the market. Remember, these are not recommendations to buy or sell, but are the most interesting of the stocks that surfaced in my scans. My objective is to save you the work of the initial, tedious culling process, but you need to apply your own analysis to see if these stocks pique your interest as well. There are no guaranteed winners here!
"Predefined Scans Triggered" are taken from StockCharts.com using the "Symbol Summary" option instead of a "SharpChart" on the workbench.
Stop levels are all rounded down.
ProShares Short Russell2000 (RWM)
EARNINGS: N/A
RWM provides inverse exposure to a market-cap-weighted index of US small-cap companies. Click HERE for more information.
Predefined Scans Triggered: Hanging Man.
RWM is up +1.40% in after hours trading. Currently RWM hasn't broken out, but given small-caps are already showing more weakness than the major markets, I expect this one to do well. If I'm wrong about a correction ahead for the market, we need to be ready to pivot out of inverses. Price is in a trading range, but I expect a breakout. The RSI is positive and the PMO just triggered a Crossover BUY Signal. Stochastics are rising after reversing in positive territory which suggests internal strength. This ETF is also outperforming the SPY. The stop is set at 4.8% or $23.72.
The trading range has been the story on the weekly chart. As noted above I expect a breakout this time around. The weekly RSI is positive and the weekly PMO is rising on a Crossover BUY Signal. I've opted to make upside potential about the amount I expect the market to decline around 23.6% or halfway up the next range.
Cambria Tail Risk ETF (TAIL)
EARNINGS: N/A
TAIL is an actively managed fund that holds mostly cash and treasuries while using the strategy of buying put options on the S&P 500 with the purpose of portfolio downside protection. Click HERE for more information.
Predefined Scans Triggered: Entered Ichimoku Cloud and P&F Double Bottom Breakout.
TAIL is unchanged in after hours trading. I liked the description of this fund. It is clearly stated that it is a hedge for your portfolio. The chart looks great. The RSI has just entered positive territory above net neutral (50), there is a new PMO Crossover BUY Signal and Stochastics just moved into positive territory. The ETF has been traveling in line with the SPY, but it is showing new relative strength now. There is a strong positive OBV divergence and I spot a bullish double-bottom pattern. The stop can be set below support at about 4.9% or $14.14.
The weekly chart shows a double-bottom forming in the intermediate term. The weekly RSI is negative but rising. The weekly PMO has surged above the signal line and is oversold. The SCTR isn't great, but this is an inverse fund and the market was traveling higher. It is increasing quickly. I've set upside potential at about 18.7%.
SPDR S&P Biotech ETF (XBI)
EARNINGS: N/A
XBI tracks an equal-weighted index of US biotechnology stocks. Click HERE for more information.
Predefined Scans Triggered: Elder Bar Turned Green, New CCI Buy Signals, Moved Above Ichimoku Cloud, Moved Above Upper Price Channel and P&F Double Top Breakout.
XBI is down -0.37% in after hours trading. XBI came up in my Surge Scan and while I wanted to avoid longs, I decided if this ETF can do as well as it did today on a decline, it might be worth a try. Investors generally find a place to go when the broad market doesn't cooperate and based on relative strength, this appears to be one of those places. Price hit overhead resistance and was stopped, but no complaints about a 4.36% move higher. The RSI remains positive and the PMO "surged" above the signal line (PMO bottom above the signal line). Stochastics are rising nicely in positive territory. Clearly relative strength is improving. I like that you can set a stop that isn't that deep at 6.5% or $77.80.
The weekly chart is very bullish. The weekly RSI just hit positive territory and the weekly PMO is nearing a Crossover BUY Signal. I particularly like the strong OBV positive divergence combined with a rising SCTR that is near the "hot zone"* above 70. Upside potential is about 21%.
*If a stock is in the "hot zone" above 70, it implies that it is stronger than 70% of its universe (large-, mid-, small-caps and ETFs) primarily in the intermediate to long terms.
Don't forget, on Thursdays I look at reader-requested symbols, click HERE to send me an email. I read every email I receive and try to answer them all!
Current Market Outlook:
Market Environment: It is important to consider the odds for success by assessing the market tides. The following chart uses different methodologies for objectively showing the depth and trend of participation for intermediate- and long-term time frames.
- The Silver Cross Index (SCI) shows the percentage of SPX stocks on IT Trend Model BUY signals (20-EMA > 50-EMA)
- The Golden Cross Index (GCI) shows the percentage of SPX stocks on LT Trend Model BUY signals (50-EMA > 200-EMA)
Don't forget that as a "Diamonds" member, you have access to our GCI/SCI curated ChartList on DecisionPoint.com. You'll find it under "Members Only" links on the left side on the Blogs and Links Page.
Here is the current chart:
Full Disclosure: I am 28% long, 4% short.
I'm required to disclose if I currently own a stock I mention and/or may buy/short it within the next 72 hours.
"Technical Analysis is a windsock, not a crystal ball." - Carl Swenlin
(c) Copyright 2023 DecisionPoint.com
Watch the latest episode of DecisionPoint Trading Room with Carl & Erin Swenlin on Mondays 7:00p EST or on the DecisionPoint playlist on the StockCharts TV YouTube channel here!
NOTE: The stocks reported herein are from mechanical trading model scans that are based upon moving average relationships, momentum and volume. DecisionPoint analysis is then applied to get five selections from the scans. The selections given should prompt readers to do a chart review using their own analysis process. This letter is not a call for a specific action to buy, sell or short any of the stocks provided. There are NO sure things or guaranteed returns on the daily selection of "Diamonds in the Rough."
Regarding BUY/SELL Signals: The signal status reported herein is based upon mechanical trading model signals and crossovers. They define the implied bias of the price index/stock based upon moving average relationships and momentum, but they do not necessarily call for a specific action. They are information flags that should prompt chart review. Further, they do not call for continuous buying or selling during the life of the signal. For example, a BUY signal will probably (but not necessarily) return the best results if action is taken soon after the signal is generated. Additional opportunities for buying may be found as price zigzags higher, but the trader must look for optimum entry points. Conversely, exit points to preserve gains (or minimize losses) may be evident before the model mechanically closes the signal.
Helpful DecisionPoint Links:
DecisionPoint Shared ChartList and DecisionPoint Chart Gallery
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
For more links, go to DecisionPoint.com