Nomenclature that I picked up from my old partner on MarketWatchers LIVE, was how some ETFs were "juiced". It's another way of saying that they are leveraged. Here are a few things to keep in mind when trading these juiced ETFs.
First, understand that it is a trade not an investment. Like most hedges or leveraged funds, you need to keep a tight leash on juiced ETFs. This is not a buy it and forget it type of trade.
Second, you assume more risk as your stops will need to be doubled and sometimes tripled depending on whether the fund is 2x or 3x leverage. It isn't your typical investment or trade.
Finally, given the amount of risk these vehicles require, I recommend small position sizes. Or, as in today's Diamonds Report, trade the comparable ETF that isn't juiced.
I've picked two juiced ETFs today as I do feel strongly bullish about Real Estate and Junior Gold Miners, but I would remind you that you can use the regular trading vehicles of XLRE for Real Estate and GDXJ for Junior Gold Miners.
A few words about my third choice. I had numerous index funds come up as well as various gyrations of the SPY and Global Markets. I decided that relative strength would be my guide. Some of these funds are managed well or have interesting components and I wanted to see if I could find one that, while tracking the market overall, would provide better returns. We'll see if the relative strength line matters.
Good Luck & Good Trading,
Erin
Today's "Diamonds in the Rough": DRN, JNUG and IOO.
Runners-up: ILF, FAS, FDN, GDXJ, XLRE, USSG, MGC, PAVE and SKYY.
RECORDING LINK (10/6/2023):
Topic: DecisionPoint Diamond Mine (10/6/2023) LIVE Trading Room
Passcode: October@6
REGISTRATION for 10/13/2023:
When: Oct 13, 2023 09:00 AM Pacific Time (US and Canada)
Topic: DecisionPoint Diamond Mine (10/13/2023) LIVE Trading Room
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Here is the last recording from 10/9:
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.
Direxion Daily Real Estate Bull 3x Shares (DRN)
EARNINGS: N/A
DRN provides 3x leveraged exposure to an index that captures large cap equities of the US real estate segment. Click HERE for more information.
Predefined Scans Triggered: P&F Double Bottom Breakdown and Elder Bar Turned Green.
DRN is up +0.55% in after hours trading. I think we should first look at the Real Estate Sector (XLRE) "under the hood" to provide evidence. Participation has shot straight up as far as %Stocks > 20-day EMA and even %Stocks > 50-day EMA is seeing vast improvement. The Silver Cross Index is very oversold, but given the expansion in participation, it will likely begin rising soon. Stochastics are rising and most importantly it is starting to outperform the SPY.
DRN is about to hit overhead resistance, but given the rising RSI and new PMO Crossover BUY Signal, I believe it will breakout above that level. Stochastics have just moved above net neutral (50). DRN is outperforming the SPY as well. The stop is actually a bit thin given this is a 3x leveraged fund, but it does translate close to a 4% stop on XLRE. I set it at 11.8% or $6.38.
This is automatically a short-term trade because it is leveraged. Price is bouncing off major lows right now. The weekly RSI is unfortunately negative, but it is beginning to rise on this week's rally. The weekly PMO is turning back up. Upside potential is why we take the risk on this one. If it reaches its prior high it would be an over 40% gain.
Direxion Daily Junior Gold Miners Index Bull 2x Shares (JNUG)
EARNINGS: N/A
JNUG provides daily 2x exposure to an index of junior gold and silver mining companies from developed as well as emerging markets. Click HERE for more information.
Predefined Scans Triggered: None.
JNUG is up +0.04% in after hours trading. Before we look at JNUG, let's look "under the hood" at Gold Miners (GDX) in general. It's not junior miners, but it gives us insight nonetheless. GDX shows excellent participation right now. We do need to be careful as participation reached these levels right before the last two reversals. I suspect we will reach overbought conditions and those conditions will persist as in March/April. Relative performance is rising alongside a new PMO Crossover BUY Signal.
JNUG is also outperforming again. The RSI is about to reach positive territory and the PMO is giving us a new Crossover BUY Signal. Overhead resistance could be a problem, but it wasn't for GDX so I don't think it will be a problem for GDXJ (non-leveraged alternative to JNUG). Stochastics are rising strongly and plenty of volume is pouring in based on the OBV. The stop is very thin for a juiced ETF. I set it below support at the late September bottom at 10% or $24.45.
The weekly charts tells us to keep this in the short-term trade department. Of course it's 3x leveraged so it should be short-term regardless. The weekly RSI is negative and the weekly PMO is in decline below the zero line and on a Crossover SELL Signal. Should we be right about this being a solid bottom, if it can reach the top of the recent trading range it would be an over 75% gain.
iShares Global 100 ETF (IOO)
EARNINGS: N/A
IOO tracks an index of 100 large-cap multinational stocks selected by the S&P Committee. Click HERE for more information.
Predefined Scans Triggered: P&F Double Bottom Breakdown.
IOO is unchanged in after hours trading. I liked the blend on this ETF which tracks pretty much all of my favorite mega-cap names. I selected it because it has been outperforming the benchmark SPY. Volume is a little low, but it passes my personal litmus test of a 50-day MA of more than 100,000. We have a double bottom on price that was confirmed on yesterday's breakout. The RSI is now in positive territory and the PMO is on a new Crossover BUY Signal. The OBV is rising so volume is coming in. Stochastics are almost above 80. You can set a nice thin stop on this one of about 4.3% or $71.96.
We have a large bull flag on the weekly chart, but it hasn't been confirmed with a breakout yet. The weekly RSI is positive and rising and the StockCharts Technical Rank (SCTR) is at the top of the hot zone* above 70. I also note a slight positive OBV divergence with price lows on the weekly chart. It's near all-time highs so consider an upside target around 17% or $87.98. It's hard to say whether we'll see a rally of that magnitude right away, but it does seem plausible.
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 45% long, 2% 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 3:00p 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:
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
For more links, go to DecisionPoint.com