The market has taken a turn for the worse and it shows in my ETF Scans and visual review. Nearly every ETF is experiencing a topping PMO and the majority have very negative price patterns. I decided it was time to offer you a shorting opportunity.
I actually am technically giving you two shorting opportunities. One is the inverse for the Real Estate sector (REK) and the other is a short on the 7/10-year Treasuries (PST). Both of these have "ultra" versions that you could consider if you have the risk appetite. DRV is the ultrashort version on Real Estate. TBT is the ultrashort version of shorting the 20-year Treasuries (I couldn't find one to ultrashort 7/10-year Treasuries).
The final selection is the Marijuana ETF (MJ) which looks better than it has in many months. It is a high risk industry to invest in, but I do like the setup right now.
Personally, I am not adding to my portfolio with the market so weak, but I'm tempted on the Treasury short and if I were to add a hedge, it would be REK or DRV.
Do understand that shorting positions are nearly always going to be very short-term trades and today's are no exception.
Good Luck & Good Trading,
Erin
Today's "Diamonds in the Rough": MJ, PST and REK.
RECORDING & DOWNLOAD LINK (1/12/2024):
Topic: DecisionPoint Diamond Mine (1/12/2024) LIVE Trading Room
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When: Jan 19, 2024 09:00 AM Pacific Time (US and Canada)
Topic: DecisionPoint Diamond Mine (1/19/2024) LIVE Trading Room
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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.
ETFMG Alternative Harvest ETF (MJ)
EARNINGS: N/A
MJ tracks an index of global firms engaged in the legal cultivation, production, marketing or distribution of cannabis, cannabinoids or tobacco products. The portfolio is weighted by market cap or equally based on a proprietary system. Click HERE for more information.
Predefined Scans Triggered: Elder Bar Turned Blue.
MJ is up +1.16% in after hours trading. Price has broken out from overhead resistance at the December tops and the 200-day EMA. Today saw a mechanical pullback to the breakout point. The RSI is positive and not overbought. The PMO is rising despite today's big decline and is not overbought. Stochastics are also still rising in spite of today's big decline. This ETF is seeing outperformance against the SPY. The stop is set at the 50-day EMA at 7.4% or $3.20. Note that this is VERY low-priced so position size wisely.
The weekly chart shows us how constructive the 2023 bottom is. Price has been declining for years and we are now seeing a possible upside turn that could see excellent price growth. The weekly RSI is positive and not overbought. The weekly PMO is on a Crossover BUY Signal and is about to cross above the zero line. The StockCharts Technical Rank (SCTR) is at the top of the hot zone*. If it can reach the 2023 high it would be a 33% gain.
*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.
ProShares UltraShort 7-10 Year Treasury (PST)
EARNINGS: N/A
PST provides 2x inverse daily resetting exposure to a market-value-selected and -weighted index of US Treasury bonds with remaining maturities between 7 and 10 years. Click HERE for more information.
Predefined Scans Triggered: Moved Above Upper Price Channel.
PST is down -0.70% in after hours trading. If you haven't guessed, I'm very bearish on Bond funds. The recent bottom on this ETF tells you why. Today saw a big breakout as the 10-year yield was on the rise today. The RSI is positive now and the PMO is rising on a Crossover BUY Signal. Stochastics have tipped back up and are above 80 again. This ETF has been outperforming the SPY. The stop is set beneath support at 5.2% or $21.66.
The weekly chart is developing. The weekly RSI is currently negative but should hit positive territory again soon. The weekly PMO shows us how strong the rally has been in Bonds. Upside potential is somewhat limited, but that is a good reason to take a look at TBT. The upside target is still more than double my stop level.
ProShares Short Real Estate (REK)
EARNINGS: N/A
REK provides inverse exposure to a market cap-weighted index of large US real estate companies, including REITs. Click HERE for more information.
Predefined Scans Triggered: None.
REK is unchanged in after hours trading. With all of the sectors turning lower I decided to revisit one of my favorite sector shorts, REK. As noted in the opening, DRV is the ultrashort if you want to increase upside potential (downside risk increases). Price has now hit overhead resistance, but if the sector chart itself is any indication (not shown), we will get a breakout here. The RSI is positive and the PMO is on a Crossover BUY Signal. Stochastics are flat but are in positive territory. The ETF is beginning to outperform the market as we would expect in a downturn. The stop doesn't have to be set that deep at 5.8% or $17.89.
The weekly chart is not pretty, but there are some signs of life. The weekly RSI is rising and the weekly PMO is beginning to decelerate. This is a hedge so your timeframe should be very short. Because of this, the weekly chart isn't as pertinent. I don't think that it is out of the question that we could see a 20%+ gain ultimately. It could take some time to get there as the market will require a big bearish shift.
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 75% long, 0% short. Outside chance I would add PST or TBT, REK or DRV.
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 2024 DecisionPoint.com
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