This Sector Quietly Returned 368% Last Month

It’s hard to tell whether or not investors will be happy to get out of the month of January and into February this year.

If you’re only paying attention to the numbers, then a quick look would suggest that last month was a bit of a yawner. The S&P 500 lost about 1% while the Nasdaq Composite picked up 1.4%.

But the lack of disparity between those two numbers doesn’t even come close to the excitement of what really happened in the markets…

See, when you look at the performance of the major sector ETFs, you’ll see a whole different story.

I’m talking about one sector in particular that rallied more than 350% over the course of January’s 19 trading days – the greatest performance in its 15-year history.

This was January’s top-performing sector – and today, I’m going to show you how to extend its success into this month…

The SPDR S&P Retail ETF (NYSEarca:XRT) turned in a performance of 368% for the month of January. It’s a holiday shopping miracle… or, it’s a group of Redditors that have decided to take down the short sellers by buying shares of GameStop Corp. (NYSE:GME), a component of the XRT shares.

The short squeeze in GME shares has helped the retail ETF turn in one of its best performances in history. If you own it, I might consider selling it, or at least adding a trailing stop to the position. Gravity is going to come into play in this situation soon.

As I’ve been warning my Night Trader subscribers, please maintain a safe distance when it comes to all-things GME. This story will end, and not likely well. The company will announce its earnings in the end of March, and let me just say…

Reality has a funny way of reintroducing gravity to a stock price.

But as you can see in the table above, XRT wasn’t the only ETF with a return worth noting last month…

A surprising strong point for the market in January was the “old school” oil sectors, like the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEarca:XOP), which turned in returns of 10%.

This move wasn’t a fluke either. We are seeing a shortage of energy early in 2021 at the same time that demand from an improving economy – even if it is just slightly improving – continues to pressure prices higher.

From a technical perspective, we saw the XOP and other oil-related trades pull back from technically overbought situations created by the rally.

Last week’s pricing consolidation for many of the companies in this sector has created a short-term buying opportunity as we see them enter another stage of their recent rally. As a result, I am looking for several bullish opportunities in names like Exxon Mobil Corp. (NYSE:XOM) and Marathon Oil Corp. (NYSE:MRO).

Now, near the top of last month’s outperformers is the Grayscale Bitcoin Trust (GBTC). That’s right – you don’t have to buy coins to invest in cryptocurrency. This proxy – and I use that term loosely – for the cryptocurrency market has found some short-term trading support at its 50-day moving average.

The chart displays the last three months of price activity for the GBTC shares. Note, the ETF pulled back (sharply) to its 50-day moving average on Wednesday last week. From there, the ETF rallied on strong volume, indicating that traders were stepping in to support the short-term rally.

Now, I’ve pointed out the “wall of worry” that is place on the crypto trade, but we should be watching the $30 level on GBTC closely as we move our way through this week.

For now, my outlook is bullish for GBTC with a target price of $50 over the next two weeks, but a reversal and retest of the 50-day would open another round of selling pressure on the commodity.

When I want to invest in cryptocurrency, I always turn to my colleague, Tom Gentile.

The guy’s somewhat of a crypto expert. Last week, he recommended closing a trade for a 150% profit after just three months – and he believes he’s just getting started.

See, Tom has big predictions for the crypto market. I’m talking about growth that could put a serious chunk of change in your pocket. Click here to learn more.

Now, speaking of selling pressure, let’s not forget about seasonality…

Today marks the first day of trading for the month of February. Believe it or not, February is one of only three months that averages negative returns for the S&P 500 over the last 20 years…

February, August, and September are all among the months in which the S&P 500 loses between 1% and 5%. In two cases, the catalyst is the same: earnings.

January and July are months that kick off earnings results. The banks and financials are the first groups to report. After that, the “flair” of the season grows tiring, and investors begin to “sell the news.” It’s one of the biggest drivers of negative returns in February and August.

That selling of the news also has an effect on volatility.

According to my studies, February sees an unusually large increase in volatility as the “sell the news” trade branches out to broader market selling in the first quarter.

The increase in volatility means a few things…

  • Don’t let this market take away your hard-earned profits. Start to identify reasonable trailing stop-loss levels on profitable positions.
  • Don’t be part of the FOMO rallies. Start identifying limit prices for stocks that you want to buy on the next pullback before the pullback happens.
  • Do remain calm and avoid getting pulled into “feeding frenzy” situations like what we’ve seen with GME and others.

Let’s close things out with a look at my top three stocks from this weekend’s watchlist

  1. Callaway Golf Co. (NYSE:ELY): The spring is finally approaching, and that means that far more of us (I’m included in this group) will be out there buying new equipment to get ready for the links.

The seasonally-strong period for ELY shares starts with the stock bouncing from its 20-day moving average last week on its way to a $32 print.

By the way, the stock carries a hefty portion of short interest. The Reddit folks just don’t want to help the golfers 😊.

  1. Camping World Holdings Inc. (NYSE:CWH): Another seasonally strong stock, CWH is brushing the snow off their campers and getting things moving.

The COVID-19 pandemic isn’t slowing demand for campers and other outdoor equipment. We should see a short bounce from $32 before the stock sets course for $40 and higher.

  1. Blink Charging Co. (Nasdaq:BLNK): Shares hit a perfect test of their 20-day moving average last week and are trading more than 3%% higher in pre-market activity.

Last week’s announcement that the government would be looking to switch to electric vehicles gave the company and others in the group an immediate boost that has already been traded out of the stock.

Look for support from the Trader’s Trendline to start a rally that will last longer than last week’s “flash-in-the-pan” government announcement.

And now, you’re set for the week. Later, I’ll give you even more ways to profit off of the market’s biggest moneymakers.

Stay tuned…

Chris Johnson

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