When we look at the markets we see headlines left and right. People chirping on twitter being able to move the markets with just their word.
When people start to see things like this they start to move to cash entirely out of fear. Remember we don’t trade off emotion, we trade the data.
Data can be defined as a quantifiable set of FACTS that can be used for analysis. As a trader there is an old adage that really helps bring this definition into our world. The trend is your friend.
The trend that is really working its magic for us right now is the 50-day moving average.
When we break the 50-day line to the down side, statistically speaking, there is a 2 out of 3 chance that the stock closes lower the next day.
Knowing what July should look like because of its seasonality I decided to use the Energy sector as my proof of concept.
This is the first round of stocks that have already seen their 50-day start to roll over and begin trending down. Now I know there is a lot of companies on this list but that’s why it’s going to be a magical time for us. The energy sector is starting to fall and create an active trading situation that is going to fill our pockets.
Bar none this is the hardest market any of us have seen in 13 years. But there is power in the data and being able to notice the trends. I didn’t feel that just seeing stocks that crossed the 50-day is enough to prove to you that we are going to be making money even though we have seen a few spikes up over the past two days.
If you have been around here for a while you know that this is just the infamous dead cat bounce. The markets are starting to hit their peaks in the bounce and will start to float even lower.
Let’s take a closer look at a few charts here because this will give you visual learners a way to see the trend we are following.
Now, do you notice anything? THEY LOOK THE EXACT SAME!
I first had this idea when I was looking into Seasonality for yesterday’s show. I’m never okay with just using the first thing I find as a reason to place a trade. Once a saw how rough of a month July has been for the energy sector historically I knew I needed to go deeper.
I started taking a closer look at individual stocks in the sector and noticed this and realized the strong trend of a roll over we are seeing leading into quarter 3. This also aligned with the seasonal data from yesterday. It was like the stars were aligning for us to see some seriously profitable moves in the coming weeks.
Is this all just luck… no it’s the data. That’s what really matters. We are not in an unprecedented market. We can have all the fancy tools in the world, all the software, and the greatest computer with the fastest internet and it really won’t matter. For most of us having those types of resources is wonderful it takes some labor out of trading, but where is the fun in that?
We can break down the market to its bare bones. Look at the data and trends, and have fun while we make trading profitable again.
As a group we have been slowing the markets down. Bending rather than breaking at the hands of the market. We are slowly turning into a modern day David vs. Goliath story and we all know who is going to come out on top.
I’ll see you guys next week as we head into the third quarter and prepare to stay away from the headlines while we keep seeing the profits come in.
Quantitative Specialist, Penny Hawk
June 24 2022