Good morning, Penny Hawks!
I’ll be LIVE at 9:30 a.m. ET today for another Long & Short of It session, where we’ll discuss why this week could be a turning point in the market.
Week 9 – which is this week! – has historically been a Danger Zone for the S&P 500 Index (SPX) over the last 20 years, as evidenced by that first red bar on the chart below, so traders should be on high alert.
Average SPX return by week over last 20 years
We’re heading into the week with some extra spicy extracurriculars, too, and just like Week 9 of 2021, there are outside forces at play that could heighten the traditional seasonal weakness.
And how could we forget Week 9 of 2020, which marked the beginning of Wall Street’s reaction to coronavirus headlines. That’s right, we were already rolling over at this point in 2020 (much like we have this year), but the market got kicked in the side by breaking news of Covid-19.
I remember it well – my Night Traders were short Bank of America (BAC) and a slew of other names, and we came out the other side of Week 9 net winners, even as the Cboe Volatility Index (VIX) spiked above 80!
So make sure you’re in the room at 9:30 a.m. ET sharp today, and if you can’t make it, never fear – you can catch the replays of all my lessons here, and I’ll outline five things to watch this historically brutal week – and the sector that could escape the market wrath (and no, it isn’t oil) – in today’s Penny Hawk newsletter.
5 Things to Watch in Week 9
Week 9 is a seasonal anomaly, but unlike the “Santa Claus rally,” you won’t find it in any Trader’s Almanac. I discovered this historical hiccup via my own research, and from being in the trading game for more than 20 years.
That said, here are five things I’m watching at the start of Week 9 in 2022:
- Late last week we saw the start of short-term bounce, after the SPX dipped into “correction” territory and most indexes tapped “oversold” readings. The Invesco QQQ Trust (QQQ) is now trading in the $340-$350 range, where we will start to see resistance, as buyers likely won’t have the fortitude to keep buying, and the machines that bought last Thursday’s morning lows will quickly turn into profit takers.
- The equity put/call ratio has yet to hit a reading in excess of 1.0, indicating this market has yet to hit a truly tradeable bottom. Remember: Bear-market trends often present fast and aggressive rallies, but buyer beware. I’ll be watching volume on the QQQ and SPDR S&P 500 ETF Trust (SPY) this week, as we have yet to see any confidence via daily volume, only the “volume vacuum.”
- Earnings season is all but over, with only a few names on the docket that have the potential to generate headlines this week. While I’ll be watching Zoom (ZM) earnings after the close today, for a potential trade opportunity in my Night Trader service, there are few earnings catalysts left to drive a bullish turnaround.
- Economic data likely won’t help either – at least, not at the start of the week. The econ calendar is relatively light this week, but everyone will be focused on the February jobs report released on Friday. Economists will be particularly honed in on wage inflation, with the next Fed meeting quickly approaching.
- The bottom line, though, is that the Russia-Ukraine conflict will likely control the headlines – and, thus, the market flow – this week.
Keep These Stocks in Your Sights
Speaking of Russia-Ukraine… The oil and natural gas sector has been one of the few “go tos” for traders amid the Eastern European conflict, with black gold recently topping $100 a barrel on global supply concerns.
However, there’s one relatively under-the-radar sector that’s also perking up amid higher-than-usual volume: steel.
The VanEck Steel ETF (SLX) has been range-bound for all of 2022 so far, but that range has widened since October 2021.
Daily chart of SLX since September 2021 – courtesy of StockCharts
Recent activity among steel stocks indicates this sector is one of the few potential breakout candidates in the market, as Russia is among the top five steel producers globally.
Top 10 steel producers in 2021 – data courtesy of WorldSteel.org
Sanctions against Russia and energy issues in Germany may put more focus on domestic steel companies, many of which are showing signs of a breakout.
We may go over some of those stocks at 9:30 a.m. today, and I could also touch on a few equities and ETFs under $10 that I’m watching for trades, including:
- A real estate stock that just crossed the sub-$10 threshold – which is a psychological hurdle – as I expected. My Penny Nation members and I could have a lot of fun with this one soon…
- Another real estate stock that got an oversold bounce last week, but could be ripe for another successful bearish trade in Penny Nation…
- The ETF approaching my $8 target for a buy-in – and a related equity that could make the same tradeable pattern on the charts…
I’ll also discuss the stock that you’d be better off trading with my colleague Kenny Glick. He is a day trader, meaning he’s out of positions before the close each day, and this name has been moving too quickly for the options market.
Speaking of day trading, what I do with Penny Nation is the “sweet spot” between fast-moving day trades and buy & hold investing – and it’s exactly the middle-of-the-road place I’d want to be during times of market turbulence (and even beyond).
So join me at 9:30 a.m. ET today for The Long & Short of It, to hear more about how I trade and what I’m watching ahead of a historically ugly week, and then I hope to see you in my exclusive Penny Nation room at 10:30 a.m. for our morning F.A.S.T Scan!
See you soon,
February 28 2022