Silver Cross or An Imposter?
Dear Trader,
We talked about the CPI number on Monday. Well this month’s CPI number came out this morning, and showed EXACTLY what we expected. I might even go as far to say that the numbers we saw may be a bit low.
I can see it now, Jerome Powell sitting on a zoom call with his buddies, talking about how they can control inflation with the next rate hike. Each of them dancing around the Elephant in the room until somebody breaks the chain.
A FULL 1%.
It would send a shock wave through the market and force the flood gates open. The markets are going to crush anyone in its way.
The sectors that would benefit from such an even are few and far between.
For example everybody wants to go to the financials right now. That’s a double edge sword. On one hand they get to charge you more, on the other they are going to be bringing in less because the recession argument is going to get kicked in high gear.
What to Do When There Is Nothing You Can Do?
When you are feeling that despair in a bear markets, you might start to think there is no way to make money through all the turmoil we are witnessing. You are doomed to have your account moved to cash and let inflation destroy everything you’ve worked so hard for.
This is the time that data collection and analysis are so important. You will want to be looking at some of the commodity based trades. The benefit there is knowing they are going to come down. Don’t think for even a second that the Fed reaction to today’s CPI numbers won’t give some added pressure to the energy and oil trades my Night Traders are in. These as well as others in the commodity market are a gauge for inflation.
Really there are just three trades you need to be making in the market right now on commodities such as oil. You ether are going to look for long term opportunities to buy shares of these companies on the way down with the idea of a market revival in mind. Play the short term trends to the downside. Lastly, you can take advantage of the premiums by selling puts as these companies find their true bottoms.
Silver Cross a simple, yet powerful indicator signal
The Silver Cross – not to be confused with a gold cross – is when the 20 day moving average crosses up above the 50 day moving average.
Now the 20-50 day lines both represent a trend in the market. But when you put them together the can really represent some momentum that will put some cash in our pockets.
Let’s take a look at QQQ
Now this chart is from a little over a year ago, but it is the perfect example of the market holding up that shiny Silver Cross just waiting to reward the observant trader.
As you can see the 20-Day (yellow line) dipped below the 50-Day (green line) but only for a brief moment before crossing back over. This second cross is telling us something, momentum is moving.
The Silver Cross is a great indicator if you are looking for a simple way to beat the average market returns.
There were 123 companies that my database pulled because they were showing a silver cross. Most of them are going to be in the consumer staples sector, some were in technology, and of course utility names.
There is only one problem with using this signal by itself….
If you want to chart the market you have to read the charts
Trading isnt just as simple as looking at a line in the market. If it was I wouldn’t be here to be your tour guide around the market.
If you have caught even one of my morning shows in the live room you know, we have to learn to understand what the chart is trying to tell us. If we never learn to understand the market, you will get hurt for your ignorance.
That’s what my Night Traders and Penny Nation members have figured out. Every single person in ether of those services falls into two categories.
First, they learned the technical skills I have been practicing for 30 years. They come for the community, the banter, and the Brandon. But most importantly to keep those skills sharp while they have fun and get some trading in before the bell.
The Other Type of person in those services does NOT know how to read the charts. Hell, they might not even want to know how to read the chart because I do that for them and give them the trades. I’ll do the hard work you just have to put them in.
One thing both of these groups have in common? They both made a decision to make their money work for them. Both are being profitable because they listen to what I’m telling you day after day.
What could possibly go wrong?
If you don’t read a chart properly you could start to see a signal, react before the market can confirm the shift, and you will inevitably end up in a trade that will push against you.
Lets look at UPS here.
As you see over on the right, the 20-day did in fact cross over the 50-day. That means UPS is about to start cooking, right?
WRONG.
There is not enough momentum to carry the 20-day up that hill we saw with QQQ earlier. This is another touch and go.
Think about this, the trend is neutral, you see the 20-50 day cross and you are expecting some real profit potential so you rush to put all of your money into the trade. Well now, you see your silver cross turn to dust and the trade floated even lower and you have to get out for a loss.
This exact scenario happens to trader’s day, after day, after day. It is the primary reason people struggle in the stock market. They are unsure of what they are doing and emotionally attached to their money and that is a bad position to be in as a trader.
Thanks for spending some time with me today I’m looking forward to being on tomorrow. Don’t forget our good friend Mark will be joining us in the Night Trader room tomorrow. Make sure you get in before then you won’t want to miss what we are getting into on our energy trades.
Chris Johnson
Quantitative Specialist, Penny Hawk
Comments
July 13 2022
