There wasn't just one group that was in the spotlight in today's scan results, there were two with a smattering of index funds. Given today's strong rally (likely short covering) many index funds found their way into the scans, in particular, small-caps. I still own an inverse of IWM (RWM) on small-caps so I couldn't present those. I also still believe a deep decline is on the way.
One of the groups was Banks. I know people that are going to attempt to ride the Financial sector higher, but Carl and I still believe this carries more risk than it normally would given that small banks are still in crisis mode. With the debt ceiling about to rear its ugly head, we believe that will put not only Bonds in a bad place, but banks on the brink as well.
The group that I did pick from was Crude Oil. I had about six of these funds in my scan results and looking at the chart, I believe we can start thinking bullishly about Oil and possibly even the Energy sector. I'll be on the lookout for good Energy stocks to discuss tomorrow for Reader Request Day. Commodities in general are also favorable so I've included the Commodities ETF (GSG).
A weird pick today is the Ultra-Bull Aerospace and Defense ETF (DFEN). Consider this one a very short-term investment and set a stop. I like the group and rather than present a 1x fund, I opted for the 3x so that we can milk it quickly.
Good Luck & Good Trading,
Erin
Today's "Diamonds in the Rough": BNO, DFEN and GSG.
Runner-ups: USO, UCO and DBO.
** 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 (5/12/2023):
Topic: DecisionPoint Diamond Mine (5/12/2023) LIVE Trading Room
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When: May 19, 2023 09:00 AM Pacific Time (US and Canada)
Topic: DecisionPoint Diamond Mine (5/19/2023) LIVE Trading Room
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Here is the last recording (5/15):
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.
United States Brent Oil Fund (BNO)
EARNINGS: N/A
BNO tracks the Brent oil spot price using near-month ICE futures contracts. Click HERE for more information.
Predefined Scans Triggered: Elder Bar Turned Green.
BNO is down -0.15% in after hours trading. I watch USO everyday as I write about it in the DP Alert. I've been suspect of Crude at this level, but today's strong rally of current support looks real. While it didn't close above the 20-day EMA, it did venture above it during trading. The RSI is still negative but should hit positive territory soon. The PMO has just turned up which is why it hit one of my scans. Stochastics have bottomed and are rising toward positive territory. It's early on this one so we may see some chop before a continuation of this breakout move. The stop is set at 7% around $24.04.
Crude has been in a sideways trading range all year long and we don't think that will change. The good news is that we are at the bottom of the range. This is a short-term trade. The indicators don't look good right now in the intermediate term. The weekly RSI, while rising, is still in negative territory. There is a weekly PMO SELL Signal in force and the weekly PMO is still headed lower. The SCTR is in the basement, not even close to the "hot zone" above 70. I am looking for a move that doubles our 7% stop level at 14.1%.
*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.
Direxion Daily Aerospace & Defense Bull 3X Shares(DFEN)
EARNINGS: N/A
DFEN provides 3x leveraged exposure to a market-cap- weighted index of US aerospace and defense companies. Click HERE for more information.
Predefined Scans Triggered: Elder Bar Turned Green.
DFEN is up +1.19% in after hours trading. This is a trading range stock which I generally avoid. However, if price is near the bottom of the range and indicators are bullish enough, we can take advantage of the range. This is a good one to take advantage of based on the upside target I've set on the next chart. The RSI is rising, but is in negative territory currently; that is a consequence of being at the bottom of a trading range. The PMO has turned up. Stochastics are rising again and are higher than at the recent Stochastics tops. It appears relative strength is angling up. The stop must be set deep given this is a 3x fund. 9% is about the same as a 3% stop on the 1x fund. I've chosen 8.9% or $17.60.
The trading range isn't so favorable on the weekly chart which is why this should be considered a short-term play. The weekly RSI almost in positive territory and rising. Unfortunately, the weekly PMO is not on board yet as it declines on a weekly PMO Crossover SELL Signal. If the current trading range on the daily chart holds up, upside potential is around 24%.
iShares S&P GSCI Commodity-Indexed Trust (GSG)
EARNINGS: N/A
GSG uses index futures contracts to gain exposure to a production-weighted index of front-month commodities futures contracts. Click HERE for more information.
Predefined Scans Triggered: Elder Bar Turned Green, Bullish MACD Crossovers and Parabolic SAR Buy Signals.
GSG is down -1.24% in after hours trading. The chart, like BNO, is very early in its move. It has been mostly range bound and is now bouncing off strong support. There is strong overhead resistance that is arriving soon, but by then I expect the indicators to mature. The RSI is negative, but rising toward positive territory. The PMO has turned up today. Volume is supporting this rally based on the OBV confirmation. Stochastics are rising and should hit positive territory soon. Relative strength could use some help but is angling upward a bit. The stop can be set thinly at 4.5% or $18.55. This is generally a slow mover so I'd say risk is lower on this one.
The weekly chart needs help. While I personally am looking at this one for the intermediate term, there is work to do to turn this one into an intermediate-term investment. In the intermediate term, I believe it could move past the 21% upside target I've put in, but as I said we need to make sure the weekly indicators continue to improve. The weekly RSI is firmly negative, but rising again. The weekly PMO is on a Crossover SELL Signal, but it has decelerated. The SCTR looks awful, but a good rally will fix that.
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 16% long, 7% 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
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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)
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