The market decline may just be beginning so it is time to think about hedging your portfolio to preserve profit. The scans were very clear today that we should be looking at hedges. Everything that came up was an inverse of some index with the exception of the Interest Rate ETF (PFIX) which I will be presenting today.
The two main areas for shorting came from small-caps, Real Estate and the Dow with a few other scattered in there. I opted to present the inverse of Emerging Markets (EDZ). It is leveraged so the stop has to be set very deeply. If that isn't your cup of tea, there are plenty of other inverses that aren't juiced.
The small-cap inverse that I chose was RWM which is the short for the Russell 2000. It is not leveraged, but you could consider TWM which is leveraged 2x.
Remember that hedges should be managed in the very short term and shouldn't be considered a primary trading vehicle. It is there to make your other losses on a decline less painful. As always be careful with leverage.
Good Luck & Good Trading,
Erin
Today's "Diamonds in the Rough": EDZ, PFIX and RWM.
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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.
Direxion Daily Emerging Markets Bear 3x Shares (EDZ)
EARNINGS: N/A
EDZ provides 3x inverse exposure to a market-cap-weighted index of companies operating in emerging markets. Click HERE for more information.
Predefined Scans Triggered: P&F Double Bottom Breakdown, P&F Descending Triple Bottom Breakdown, Breakaway Gap Ups, Gap Ups and Runaway Gap Ups.
EDZ is down -0.21% in after hours trading. We have a breakaway gap today that implies more upside to come. It also looks like a "V" Bottom which is also bullish. This pattern suggests we will see a move past the top of the left side of the "V". That's a hefty gain on a leveraged ETF. The RSI just moved into positive territory and the PMO has triggered a Crossover BUY Signal. Stochastics are rising strongly. It is beginning to see a little bit of outperformance. Since this is leveraged, we have to set a very deep stop at 11.9% or $8.54.
Price has just popped above strong overhead resistance. Not surprisingly the other indicators aren't that favorable given the long-term decline it has been in, but I do notice that the weekly PMO is turning back up. This one doesn't have a StockCharts Technical Rank (SCTR). Many times ETFs won't. If it did have one, we would be watching for it to overcome the red horizontal line that marks the beginning of the hot zone*.
*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.
Simplify Interest Rate Hedge ETF (PFIX)
EARNINGS: N/A
PFIX is actively managed to provide a hedge against a sharp increase in long-term interest rates. The fund holds OTC interest rate options, US Treasuries, and US Treasury Inflation-Protected Securities (TIPS). Click HERE for more information.
Predefined Scans Triggered: New CCI Buy Signals, Bullish MACD Crossovers, Moved Above Ichimoku Cloud and P&F Low Pole.
PFIX is down -0.64% in after hours trading. Interest rates are on the rise and I'm looking for them to get back to their 2023 tops. This will work well for this ETF or you could consider inverse Bond funds. Today saw a breakaway gap that took price back above overhead resistance. The RSI is positive and the PMO is going in for a Crossover BUY Signal. Stochastics are rising strongly. Notice the 5-day EMA crossed above the 20-day EMA, that's a ST Trend Model BUY Signal. The stop is set as deeply as I felt comfortable at 7.8% or $47.44.
The weekly chart looks pretty good. While we do see a weekly PMO Crossover SELL Signal, it has begun to turn back up. The weekly RSI is positive and not overbought. We even have a SCTR in the hot zone. As noted earlier, I'm looking for a test of 2023 highs.
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: P&F Double Bottom Breakdown, New CCI Buy Signals, P&F Quadruple Bottom Breakdown, P&F Triple Bottom Breakdown and Entered Ichimoku Cloud.
RWM is down -0.36% in after hours trading. Here we have another gap up move. The 5-day EMA has crossed above the 20-day EMA for a ST Trend Model BUY Signal. The RSI is positive and far from being overbought. The PMO just triggered a Crossover BUY Signal and Stochastics are rising in positive territory. If you want the leveraged version it is TWM. The stop doesn't have to be set deeply as this isn't leveraged. I've set it at 5.6% or $19.91.
I notice a reverse head and shoulders on the weekly chart. Left should at beginning of 2024, followed by a head and now another shoulder. The weekly RSI is negative, but the weekly PMO is on a rather new Crossover BUY Signal. If it gets back to the top of the trading range it would be an over 20% gain.
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 30% long, 8% 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