The market is being backed into a corner as speculators begin selling off their stocks.
But listen up – the volatility permeating the market this week isn’t anything new. In fact, in the past year, retail traders like you have actually created a permanent state of volatility that’s completely transformed the financial world.
For the first time ever, you’re controlling the market – and it’s time you took your share of the cash. Want to take financial power into your own hands? Well, you can. And it all starts right here.
Now, I joked that we wouldn’t see “sell in May” activity at least for a few weeks, but this morning’s consumer price index report showed that consumer prices have rocketed 4.2% – the fastest rate since 2008.
Naturally, this has caused another wave of sellers to enter the market.
It’s made worse because of the “buyer’s strike” that you and I have been discussing for the past month.
The market only rallies higher when buyers crowd out the sellers.
But for the past few weeks, we’ve seen buyers sitting on the sidelines. They won’t even buy the dips.
This spells trouble for the short-term trend.
I’ve noticed a severe lack of volume on major ETFs, and their largest component companies have begun dropping yet again. A very strong signal that the buyer’s strike is continuing through May.
Unfortunately, things are turning more dire, since the only volume we’re seeing is on select selling surges.
Adding to the pressure, we’re entering a more tepid part of the earnings season as the “headliner” companies are now finished dazzling Wall Street.
But this is turning the spotlight on what I expect will be the biggest opportunity of the earnings season.
For starters, this negative market movement has revealed a very “strong defense” we can make to protect and grow our portfolio at the same time.
But it gets better.
Small cap and retail companies will start to own the after-hours news cycle as the earnings focus shifts to this group, and this is presenting a few “trick plays” we can use to make more money.
These “trick plays” are the best way to profit throughout this ongoing buyer’s strike…
First, the retailers.
The retail stocks have taken a break this week as some of the leaders like Gap (NYSE: GPS), American Eagle (NYSE: AEO), Abercrombie & Fitch (NYSE: ANF), Boot Barn (NYSE: BOOT), and Chicos (NYSE: CHS) have seen some profit taking over the last few days.
Taking profits is allowed in this market, but not trend reversals.
The retail stocks continue to hold their trends which is something that I expect to continue.
In addition, the retail sector is among the “late reporting” stocks during earnings season. This means that we’re going to see earnings reports on the calendar for these companies soon which also means that the “buy the rumor” traders will start buying again.
Let’s look at a few target buy prices.
The Exact Price I’m Targeting For Retail
- Gap (NYSE: GPS):Target buy price $33.
- Abercrombie & Fitch (NYSE: ANF): Target buy price $38.00
- Camping World Holdings (NYSE: CWH): Target buy price $44.00
- Chicos (NYSE: CHS): Target buy price $3.50
You may have noticed that there’s a new retailer on my list.
A real blast from the past, CHS.
The fashion clothing company has had a rough go for the last five years after being one of my favorite retail companies to trade.
Year-to-date, CHS shares are up more than 135% (that’s not a typo) as the re-opening trade is now including companies and retailers that have a hand in people returning to the office which will bolster demand for business casual attire.
That’s right, this is the anti-sweatpants trade and I think its going to tack another 50% on to CHS value.
CHS‘s shares are building another “silver cross” pattern as the 20-day moving average is crossing back above the 50-day, but there’s more to this trade.
Also, CHS shares have gone “quiet” over the last month as we’ve seen the stock consolidate in a range. The drop in volatility is suggesting to me that we’re going to see an aggressive move in the share price. The trend in the stock is flashing signals that the volatility move is more likely to be to the upside as earnings approaches in early June.
The trade is developing over the next few days, But I’m eyeing a new option position for the Night Trader
portfolio to leverage what I see as a huge move in the stock.
The very minute it’s time for us to make our move, I will be notifying Night Trader readers exactly what to do.
If you’d also like to receive up-to-the-minute trade instructions, please call 1-877-211-3024 for more information.
Along with these trick plays are the “strong defense” I mentioned in my opening.
The Strongest Defensive Stocks of the Year
The “risk on” trade has been losing its steam over the last month as speculative interest in stocks appears to be waning. There are two things that will fix this.
First, the return of trading volume to the market.
Put simply, the “buyers strike” needs to end.
Volume on the major ETFs continues to drop, which means that traders are getting even more cautious. This situation is a warning that’s telling us to be careful.
Which is why I’m taking action to protect my portfolio from any potential fallout.
My first “strong defense” stock is the iShares Micro-Cap ETF (NYSE: IWC).
The IWC is balancing at the $140 level again.
This is the fourth time that the ETF has tried to bounce from this price in two months, and the fourth time is less likely to be the “charm.”
Recent technical trends in small and micro-cap ETFs are telling me that we’ll break through this critical support level on our way to a possible $120 print. That means that it’s time to add more hedged positions.
My second “strong defense” stock is the ProShares UltraPro Short Russell2000 (NYSE: SRTY)
At minimum, I think that investors should be considering the SRTY shares as a hedge.
We should also be considering making some hedges against inflation
, which I wrote about extensively this past March.
Not to mention, volatility continues to linger in the market, so it’s best to protect against it as well.
In fact, while we’re talking about hedges, there are some stocks that I’ve discussed last year that are still proving themselves very strong defense stocks.
Let’s not forget to review some hedges on the weaker sectors as well.
We traded an SPDR S&P Biotech ETF (NYSE: XBI) put after my comments on the Night Trader chat last week.
If you’d like to join me in my live chats, and get up-to-the-minute trade updates, please call 1-877-211-3024 for all the details on my premier trading service, Night Trader.
The XBI qualifies as one of my “worst in breed” ETFs as the percentage of component companies trading above their respective 50-day continues to dive. That’s a sign of bad breadth and technical despair.
At the same time, we keep seeing traders trying to call a bottom on the biotech sector. This makes for a dangerous situation where one of the most volatile sectors in the market keeps spiraling lower as these bulls lose hope and turn to sellers.
Although our hedge position in XBI was closed yesterday with target profits, I am looking for another position in the next few days as my target on the XBI sits at $110.
There are so many different ways for us to make money in this down market, and things are getting busy.
I’ll continue to help you build the perfect 2021 summer portfolio as well, so please tune in for the next edition of Straight-Up Profits.
Until next time,