In 30-plus years of trading, I’ve seen… a lot.
The dot.com bubble when nearly every tech stock tanked and most fell right into the abyss… The Great Recession in 2008 and the sub-prime derivative market that set it off… the ensuing decade-long, biggest bull market in history… the Covid Crash in 2020…
We can pinpoint the health of the economy, financial markets, individual securities, and trades through charts and technical analysis.
That’s my specialty.
You know this.
And I’d estimate that, by now, I’ve pored through tens of millions of those technical charts.
But NOTHING compares to the chart I reviewed this past Wednesday.
I have literally never seen a market look like this.
We’re on the cusp of an incredible trade opportunity. One that could come at any moment.
And it all started with this one chart…
The “X-rated ETFs” – the sector ETFs beginning with “X” – here are showing you something that I don’t think I’ve ever seen, and if I have, it was all the way back in 2008.
There’s a common theme above. When you look at the charts of each.
Most are crossing their 50-day moving averages, getting ready to break the bottom Bollinger Bands.
The most important part about this is that the typical safe-harbor sectors – the industrials, energy, or financial services – are all experiencing the same trading pattern.
Take a look at this on XLI, the ETF following Industrials:
Bollinger bands are in blue, while the 50-day moving average is in green. It’s beginning to trade lower than its 50-day average, while price volatility in the security itself is heading to the downside.
Practically every key ETF sector is falling in line with this theme.
I’m not going to go through every single one because it’s more important to focus on what it’s telling you: it’s bad. And now is the time – if there ever was – to start preparing your trades.
There’s correlation in this market that’s coming together. It’s no longer a herding-cat market.
What you are witnessing right now, as we head into September, is all the cats and bears starting to run in the same direction.
The bottom line is this: we’ve been bearish, and it’s time to double down.
This market has now been pushed into a corner, and things are going to get messy as we try to get out of it.
Like, literally, this market’s back is against the wall, and it’s time to start swinging.
All the X’s are telling you where the market’s going. The key word here is “going.”
There’s still time to set your beartraps. There’s still time to let the market come to you and profit from the madness that’s to come. That’s what we spoke about on Wednesday, and it’s important you act now if you didn’t then.
It’s not too late to protect a portfolio from puts on the hot spots in the market. We’re talking about the likes of QQQ, SPY, and IWM, along with a few sectors like SMH, XLB, and XHB.
These are quite literally the type of puts I have in my personal account that you hear me referring to on the show all the time.
From there, you can get even more granular on these sectors with relative strength laggards of the groups.
When it comes to the top-level puts, those are looking at October and November to allow time for these intermediate, 4-to-6-week trends to lead us to new lows.
Meanwhile, the shorter-term, “alpha” trades on the weakest stocks in the sectors above (what I like to call the “Worst in Breed”) are September and October expiry.
I honestly can’t stress this enough: I’ve never seen a market like this. And what we’ll cover in the show over the next few episodes will be how to best set yourself up to protect (and profit) from what’s to come. Make sure you’re tuning in.
Quantitative Specialist, Penny Hawk
September 02 2022