Hello, Penny Hawk traders!
I’ll be LIVE at 9:30 a.m. ET today for another Long & Short of It session, and we have a lot to cover, so make sure you’re in the room!
If you aren’t able to catch my sessions in real-time each morning, though, bookmark this replay page for all my lessons and watch at your leisure.
If you’ve been following me closely, you know I’ve been shouting about a bear market brewing for a while now, which is why I created your Bear Market Survival Guide.
And whaddya know, the S&P 500 Index (SPX) officially entered “correction” territory yesterday, which means it’s down 10% from its record-high close hit just a few short weeks ago.
This market doesn’t want to go up, the usual leading sectors aren’t trying to lead, and volume is pathetic considering what’s been going on around Wall Street and the Russia-Ukraine border – and lighter volume certainly benefits the bears more than the bulls.
It’s a toxic market backdrop, if you ask me, and we’ve only scratched the surface.
Home Depot’s (HD) earnings disaster helped sink the Dow Jones Industrial Average (INDU) – not to mention the housing and retail sectors – yesterday, and there are a couple of low-dollar retail stocks that could suffer the same fate around earnings.
Outside of retail, there’s another sector, in particular, that is getting ravaged again – and I think the worst may be yet to come. This could set up some bearish trading opportunities for my Penny Nation and Night Traders soon…
I’ll dive into some of my favorite short candidates – as well as why you should never put all your eggs in one bearish basket – in today’s Penny Hawk newsletter and in our 9:30 a.m. LIVE session, so I hope to see you in the room!
2 Sectors That Could Suffer
The clean energy sector is getting ravaged again, after a nice 2-3 week run of sitting out the broader downturn.
This piqued my interest because we’re in Week 8 of 2022, and last year Week 9 was an absolute killer for not only stocks in general, but for the clean energy sector in particular.
And guess what? Just like this year, last year’s Week 9 bloodbath also came on the heels of clean energy outperforming most other sectors.
There are a bunch of enticing short trades starting to shape up in this group, so Penny Nation members should be on the lookout for potential trade ideas from me.
Meanwhile, the retail sector dominates this week’s earnings calendar, with HD kicking off the holiday-shortened week – and sending the SPDR S&P Retail ETF (XRT) barreling below recent support.
Daily chart of XRT since November 2020 – courtesy of StockCharts
XRT closed under $75 on Tuesday, and is staring up at its 20-, 50-, and 200-day simple moving averages (SMAs).
Digging deeper into the retail sector, there are a few low-dollar stocks in the “prize zone” grabbing my attention.
Chico’s FAS (CHS), American Eagle Outfitters (AEO), and Buckle (BKE) will report earnings in the coming weeks, and all three are setting themselves up for some technical resistance – trade ideas I could go over at 9:30 today.
A slight earnings miss or a weak company outlookcould cut deep into the stocks’ respective prices.
Like I said, though – it’s important to never have all your eggs in one basket, especially when it comes to trading.
That means not dedicating your entire portfolio to one stock, sector, or even trading strategy.
Having a portfolio that’s too lopsided makes you vulnerable to heavy losses, should the tide turn against you.
That’s why I’ll be going over a few “short squeeze” candidates at the opening bell today.
A short squeeze is what happens when a heavily shorted stock makes a notable move higher, triggering a mass exodus of short sellers.
Because these bearish traders have to buy back their borrowed shares in order to avoid steeper losses, oftentimes buying (or “short covering”) begets buying, and the “squeeze” sends the stock even higher. It’s a vicious cycle.
Although short squeeze candidates are slim at the moment, due to so many of the shorts making bank on the market downturn, a few stocks cropped up on my scan, including Bloomin’ Brands (BLMN).
Penny Nation traders could see low-dollar BLMN call options – along with a handful of other short-squeeze ideas – in their inboxes soon…
Another way to make sure your portfolio isn’t too lopsided, though, is via hedging – something I discuss at length in your Bear Market Survival Guide.
Hedging, by design, prevents you from putting all your eggs in one basket… and helps traders sleep better at night, especially when stocks are shifty and making wild swings.
We’ll touch on this topic a bit in today’s 9:30 a.m. ET LIVE session, and in tomorrow’s Penny Hawk newsletter, we’ll do a deeper dive into what “hedging” means, ways to hedge a position or portfolio, and why the current market environment means it’s CRUCIAL that you understand the importance of hedging ASAP.
That’s all for now, but I’ll see you in the room shortly!
February 23 2022