It is time to start talking about hedging. The market is quite weak and we believe it will continue lower. One way to protect your portfolio is to take advantage of inverse ETFs as hedges. We do not want to consider them primary investments, they should be managed in the extremely short term and should be position sized wisely.
Be sure to look through the ones I have listed as runner-ups and be sure to note whether it is leveraged or not. If you see the "ultra" in the name it is 2x. Most others will list if they are 3x ETFs. I'm presenting one that is not leveraged and one that is. Leverage gets you more bang for the buck, but you are open to far more risk to the downside. Remember if it is an ultra or 3x ETF, you should consider doubling or tripling your stop level. If you don't like that, stick to the non-leveraged ETFs.
I did find one ETF on the buy side. It is a familiar name as we have taken advantage of its swings before, Breakwave Dry Bulk Shipping ETF (BDRY). I like its current setup.
Tomorrow is Reader Request Day! Be sure and get your symbols in before 1p PT tomorrow.
Good Luck & Good Trading,
Erin
Today's "Diamonds in the Rough": BDRY, RWM and SPXU.
Runner-ups: DOG, HIBS, LABD, PSQ, SDS, SDOW, SPDN, SQQQ, SRTY and TECS.
RECORDING & DOWNLOAD LINK (3/29/2024):
Topic: DecisionPoint Diamond Mine (3/29/2024) LIVE Trading Room
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Topic: DecisionPoint Diamond Mine (4/19/2024) 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.
Breakwave Dry Bulk Shipping ETF (BDRY)
EARNINGS: N/A
BDRY tracks an index of long-only exposure to the nearest calendar quarter of dry bulk freight futures contracts on specified indexes.
Predefined Scans Triggered: P&F Double Bottom Breakdown, Elder Bar Turned Green, Bullish MACD Crossovers and Filled Black Candles.
BDRY is down -0.07% in after hours trading. This one did not come up in the scans, I found it visually based on the short-term bullish reverse head and shoulders. The RSI is now in positive territory. The PMO is trying to turn up while above the zero line. Stochastics decelerated, but they are still on the rise and headed to strength territory above 80. This ETF has been outperforming the SPY. I've set the stop beneath the shoulders of the pattern at 7.4% or $12.78.
Price turned back up before actually testing the support line and that is bullish. I do not like the weekly PMO configuration, but the weekly RSI is positive and the StockCharts Technical Rank (SCTR) is at the very top of the hot zone*. Still, until the PMO turns back up, this should be considered a short-term trade.
*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 Short Russell2000 (RWM)
EARNINGS: N/A
RWM provides inverse exposure to a market-cap-weighted index of US small-cap companies.
Predefined Scans Triggered: P&F Double Bottom Breakdown, Stocks in a New Uptrend (Aroon), P&F Quadruple Bottom Breakdown, Moved Above Upper Price Channel and P&F Triple Bottom Breakdown.
RWM is up +0.05% in after hours trading. Price is rising out of a double bottom formation. The 20-day EMA is about to cross above the 50-day EMA for a Silver Cross IT Trend Model BUY Signal. Price had closed above the 200-day EMA. Today also saw a bullish engulfing candlestick. The RSI is positive and the PMO is rising above the zero line indicating pure strength. The OBV shows plenty of volume coming in on this hedge. Stochastics are above 80 and rising. As we would expect, it is outperforming the SPY. The stop is set near support at 7.6% or $20.24.
This ETF travels in a sideways trading range and it currently is rising off the bottom of it, leaving plenty of room to the upside. The weekly RSI is now in positive territory and the weekly PMO is nearing a Crossover BUY Signal. Upside potential is quite good considering this is not a leveraged ETF.
ProShares UltraPro Short S&P500 (SPXU)
EARNINGS: N/A
SPXU provides (-3x) exposure to a market-cap weighted index of 500 large- and mid-cap US companies selected by the S&P Committee.
Predefined Scans Triggered: Moved Above Upper Keltner Channel and Stocks in a New Uptrend (ADX).
SPXU is down -0.16% in after hours trading. This is so clear, but it is a 3x leveraged bear fund for the SPX and MID. The rally has taken price above the 50-day EMA. The RSI is positive and not overbought. The PMO is rising strongly on a Crossover BUY Signal. Stochastics are already oscillating above 80. This is about the tightest stop I think you can use given this is a 3x leverage. I've opted for a 10.1% stop at $33.32.
The weekly chart is positive and suggests more upside ahead. The only issue is the negative weekly RSI. The weekly PMO looks very good as it rises toward a Crossover BUY Signal. Volume is coming in on this hedge. We should be able to get 30% out of this one if the decline catches fire.
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 40% long, 5% 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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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