The market took a turn for the worse on the back on the three growth sectors, Consumer Discretionary, Communication Services and Technology. It appears that investors have become suspect of the high multiples of the AI stocks and theme. We also saw the broader market take a hit as small-caps and mid-caps pulled back today after holding their own against the SPY. All of this gives me the sense that it is time to consider hedges. I have two for you today.
It is probably a good time to start tightening up stops as the market seems particularly vulnerable to more decline right now so be careful out there.
Good Luck & Good Trading,
Erin
Today's "Diamonds in the Rough": IVOL, SARK and SDOW.
Runner-ups: DBA, DOG, SCHD, NVDS and TSLZ.
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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.
Quadratic Interest Rate Volatility & Inflation Hedge ETF (IVOL)
EARNINGS: N/A
IVOL is an actively managed portfolio of TIPS and long options tied to the U.S. interest rate swap curve. Click HERE for more information.
Predefined Scans Triggered: P&F Double Top Bottom Breakdown and Elder Bar Turned Green.
IVOL is down -0.05% in after hours trading. What caught my eye was the rounded bottom with the bull flag breakout. The RSI is positive and not overbought. The PMO is surging above the signal line and Stochastics have tipped up. The OBV is rising to confirm the rally and relative strength is beginning to rise again. This is a safer investment as the stop doesn't have to be deep. I've set it below support at 4.9% or $18.04.
The weekly chart does show that upside potential is rather limited, but we've seen it reach very high levels before. The weekly RSI just hit positive territory and the weekly PMO is rising nicely on a Crossover BUY Signal. The StockCharts Technical Rank (SCTR) is terrible as it lie well outside the hot zone* above 70.
*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.
Tuttle Capital Short Innovation ETF (SARK)
EARNINGS: N/A
SARK is an actively managed fund that seeks to achieve -2x the return, for a single day, of the ARK Innovation ETF (ARKK) through swap agreements with major global financial institutions.
Predefined Scans Triggered: Elder Bar Turned Green, New CCI Buy Signals, Gap Ups, Bullish MACD Crossovers, Moved Above Ichimoku Cloud, Moved Above Upper Price Channel and Bullish 50/200-day MA Crossovers.
SARK is down -0.50% in after hours trading. I wouldn't be surprised if we did see a pullback after today's big run up (it is a 3x leveraged ETF). There may be some "buy the dip" folks out there, but ultimately this is the area I do expect to struggle most. The RSI is positive and not overbought. There is a new PMO Crossover BUY Signal and Stochastics have turned back up in positive territory. As we would expect relative strength is very good as it does tend to travel opposite the index. The stop needs to be deep because it is leveraged. I've set it below support at 9.3% or $28.49.
We see that this is a very strong area of overhead resistance, but as weak as ARKK looks, we should see a breakout. The weekly RSI just entered positive territory and the weekly PMO has surged above the signal line. The SCTR is inside the hot zone right now. I would consider this a very short-term trade as it is a hedge.
ProShares UltraPro Short Dow30 (SDOW)
EARNINGS: N/A
SDOW provides 3x inverse exposure to the price-weighted Dow Jones Industrial Average, which includes 30 of the largest US companies.
Predefined Scans Triggered: P&F Double Bottom Breakdown, Elder Bar Turned Green, Parabolic SAR Buy Signals and P&F Triple Bottom Breakdown.
SDOW is down -0.51% in after hours trading. We have a nice breakout above overhead resistance today. As mentioned above, we could see some buying tomorrow, but this is a good place to consider a hedge. Smaller-caps have mostly held up and these are the mega-caps that are weakening. The RSI is about to enter positive territory. The PMO is turning back up toward a Crossover BUY Signal. Stochastics are almost in positive territory as well. With the weak market this one is showing very good relative strength. The stop has to be set deeply given this is leveraged 3x. I've listed it at 11% or $14.05.
The weekly RSI is negative as it should be given the poor performance of this inverse on the bull market rally. The weekly PMO however is turning back up. This should be a very short-term hold given it is a hedge.
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 "Under the Hood" 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, 3% 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