After running my bullish Diamond PMO Scan, I found four inverse ETFs. They all were basically shorting the SP500 so I had to dig deeper.
Knowing that the market is weak and I expect it to move even lower, I decided to dive into my inverse ETF list to see if I could find some other candidates that looked as good or better than the inverse SP500 ETFs. It didn't take long to find three that I liked. I've listed the others for your review under the "runner-ups".
Two of today's ETFs are "juiced" or leveraged. One is a 2x fund and the other is a 3x fund. Remember with juiced ETFs you should half your position size on a 2x ETF and shave 2/3rds on a 3x ETF. It's a good rule of thumb but obviously you can adjust your position sizes accordingly.
Good Luck & Good Trading!
Today's "Diamonds in the Rough": ERY, SEF and WEBS.
Runner-Ups: DWSH, HDGE, SPDN, SH, BERZ and SDOW.
RECORDING LINK (11/29/2022 - No Diamond Mine on 12/2):
Topic: DecisionPoint Diamond Mine (11/29/2022) LIVE Trading Room
Start Time: Nov 29, 2022 09:00 AM
REGISTRATION for 12/9/2022:
When: Dec 9, 2022 09:00 AM Pacific Time (US and Canada)
Topic: DecisionPoint Diamond Mine (12/9/2022) LIVE Trading Room
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Here is the last recording:
Welcome to DecisionPoint Diamonds, wherein I highlight ten "Diamonds in the Rough" per week. These are selected from the results of my DecisionPoint Scans which search for stocks that could benefit from the trend and condition of the market. Remember, these are not recommendations to buy or sell, but are the most interesting of the stocks that surfaced in my scans. My objective is to save you the work of the initial, tedious culling process, but you need to apply your own analysis to see if these stocks pique your interest as well. There are no guaranteed winners here!
"Predefined Scans Triggered" are taken from StockCharts.com using the "Symbol Summary" option instead of a "SharpChart" on the workbench.
Direxion Daily Energy Bear 2x Shares (ERY)
ERY provides 2x inverse exposure to a market-cap-weighted index of US large-cap companies in the energy industry. Click HERE for more information.
Predefined Scans Triggered: P&F Double Top Breakout.
ERY is down -0.22% in after hours trading. I love this bullish chart. The only issue is new overhead resistance that is nearing. Otherwise, the RSI is comfortably positive. The PMO is rising on an oversold BUY signal. The OBV is definitely confirming the rally as it has rising bottoms. This one is already outperforming the SPY and I bet it will really outperform soon if the market breaks down as I expect. The stops on juiced ETFs are tricky. They are usually very volatile and you can get stopped out easily. They aren't for the faint of heart. And, remember halving your position can alleviate some of that. The stop is therefore 9.1% around $28.79.
The weekly chart is improving as the weekly PMO goes in for a possible crossover BUY signal. I hesitate to infer that upside potential is as high as 62%, but should it reach the last top in September, it would be quite lucrative. Mainly we want to use these as a short-term trading tool, not a long-term position.
ProShares Short Financials (SEF)
SEF provides inverse exposure to a market-cap-weighted index of US financial services companies. Click HERE for more information.
Predefined Scans Triggered: New CCI Buy Signals.
SEF doesn't appear to trade after hours or if it is, it is unchanged. This is not a leveraged ETF. Right now I see a double-bottom that would imply a breakout to the next level of overhead resistance at a minimum. The RSI is rising and is now in positive territory. The PMO just generated an oversold crossover BUY signal. Stochastics are now above 80. All the things I look for. It is beginning to outperform the SPY. The one heartburn I have is the recent death cross of the 50/200-day EMAs. However, a move above the 200-day EMA would clear that condition fairly quickly. The stop can fortunately be set thinly, but upside potential is somewhat limited so it needs to be. I've listed it below the double-bottom at about 5.1% or $12.24.
As noted above upside potential is limited to about 15%. Certainly if the market dives lower that would mean a breakout. I think there is a high probability that will happen. The weekly RSI is negative but at least rising. The weekly PMO is still in decline after an overbought SELL signal. While I don't care for that, I do note the PMO is decelerating its decline right now.
Direxion Daily Dow Jones Internet Bear 3X Shares (WEBS)
WEBS provides 3x daily inverse exposure to a market-cap-weighted index of the largest and most liquid U.S. Internet companies. Click HERE for more information.
Predefined Scans Triggered: Bullish MACD Crossovers and Parabolic SAR Buy Signals.
WEBS is unchanged in after hours trading. Love the chart, just wish we had confirmation with a breakout above the confirmation line of the big double-bottom and a close above the 50-day EMA. I expect to see that soon. Here's why. The RSI just moved into positive territory. The PMO is bottoming almost above the signal line and should give us a crossover BUY signal soon. The OBV has a positive divergence with price. Stochastics are rising strongly in positive territory. The ETF is showing new relative strength. This is a 3x ETF so taking a 1/3rd position is safest, but again with leveraged ETFs the stops will be deeper. In this case I would've moved it below the October low, but that was about a 12% stop. Instead I opted to use a 9.1% stop which puts price around $33.56.
This was my least favorite weekly chart today as there is a massive bearish double-top developing. Maybe this is part of a "handle" on the cup shaped bottom. Fortunately the weekly RSI has moved positive and the weekly PMO is decelerating its decline. I forgot to mention, this is a log scale chart. If it can reach overhead resistance that would be an over 52% gain.
Don't forget, on Thursdays I look at reader-requested symbols, click HERE to send me an email. I read every email I receive and try to answer them all!
Current Market Outlook:
Market Environment: It is important to consider the odds for success by assessing the market tides. The following chart uses different methodologies for objectively showing the depth and trend of participation for intermediate- and long-term time frames.
- The Silver Cross Index (SCI) shows the percentage of SPX stocks on IT Trend Model BUY signals (20-EMA > 50-EMA)
- The Golden Cross Index (GCI) shows the percentage of SPX stocks on LT Trend Model BUY signals (50-EMA > 200-EMA)
Don't forget that as a "Diamonds" member, you have access to our GCI/SCI curated ChartList on DecisionPoint.com. You'll find it under "Members Only" links on the left side on the Blogs and Links Page.
Here is the current chart:
Full Disclosure: I am 10% exposed. Will possibly add one of these inverses to my portfolio this week.
I'm required to disclose if I currently own a stock I mention and/or may buy/short it within the next 72 hours.
"Technical Analysis is a windsock, not a crystal ball." - Carl Swenlin
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Watch the latest episode of DecisionPoint with Carl & Erin Swenlin on Mondays 7:00p EST or on the DecisionPoint playlist on the StockCharts TV YouTube channel here!
NOTE: The stocks reported herein are from mechanical trading model scans that are based upon moving average relationships, momentum and volume. DecisionPoint analysis is then applied to get five selections from the scans. The selections given should prompt readers to do a chart review using their own analysis process. This letter is not a call for a specific action to buy, sell or short any of the stocks provided. There are NO sure things or guaranteed returns on the daily selection of "Diamonds in the Rough."
Regarding BUY/SELL Signals: The signal status reported herein is based upon mechanical trading model signals and crossovers. They define the implied bias of the price index/stock based upon moving average relationships and momentum, but they do not necessarily call for a specific action. They are information flags that should prompt chart review. Further, they do not call for continuous buying or selling during the life of the signal. For example, a BUY signal will probably (but not necessarily) return the best results if action is taken soon after the signal is generated. Additional opportunities for buying may be found as price zigzags higher, but the trader must look for optimum entry points. Conversely, exit points to preserve gains (or minimize losses) may be evident before the model mechanically closes the signal.
Helpful DecisionPoint Links:
DecisionPoint Shared ChartList and DecisionPoint Chart Gallery
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
For more links, go to DecisionPoint.com