Uncertainty is continuing in the indexes this week. Voices from across the trading world are talking over each other with conflicting views. No one really seems to know which way this market will go. Has support been found, are we spotting a setup for a longer trend to the downside, or are we still in consolidation? If you are not confident about which way the market will go, but you still want to trade, then it is time to grab your binoculars and channel your inner Steve Irwin. You are now starting the hunt to find the elusive Honey Badger stocks.
The Honey Badger may be small and cute to some, but do not let its appearance fool you. In the animal world, a Honey Badger does not care if it is going after a Zebra or a Cobra. It will take both down if it means survival – or a good meal. The same thing can be true of Honey Badger stocks when it comes to trading. Honey Badger stocks do not care which way the market is heading, they are going to continue their trek higher for survival in the market. Even if the indexes look like they are tipping over for a fall, the Honey Badger stocks look over at the indexes, laugh, and continue climbing.
Finding Honey Badger stocks may seem tedious. Going through the process of scanning watch lists. However, once you discover a Honey Badger stock, you will find yourself trading with a bit more ease, despite the market direction. These stocks can give peace of mind to a trader when everything else seems uncertain. Remember, a Honey Badger does not care what any other stock or index is doing. So if you are hesitant about jumping into this market but still want to make trades, don’t forget about the Honey Badger. Think about how it can benefit your account.
John — The market took off its shirt this week, and underneath the wardrobe were plenty of scars and bruises. The question continues, “Is this just a normal pause in this 9-year bull market or is something bigger going on here?” The bull is extended, of course, but as you’ll see in the graphic below, we’ve had 4 bull markets last 12-15 years since 1926. The idea that it is the end of the world as we know it is insane. That said, nothing goes straight up or straight down. This market is changing, and we have to change with it or get chewed up faster than my dog, Gracie, attacking an unsupervised piece of pizza on the kitchen counter. XLP is dying. Interest rates are going up, and the S&P 500 has cracked key levels. This opens up the door for a retest of the Feb lows and beyond. In this environment, it is important not to just “be long and pray” since that has worked so well in the past. Instead, “be safe and don’t lose a lot of sleep” tends to work better in this environment. Remember, emotions destroy objectivity. Trade smaller. Focus on long straddles, like the trade we closed out in XLF today. Focus on honey badger stocks. And remember, it is ok to be “flat more” so that your objectivity remains primed. For Friday, if the markets close at their lows of the day, there is a chance of Margin call Monday(something we haven’t seen since August 2015). This scenario points to a potential limit down move to shake out all of the weak hands before rebounding higher.
Raghee — I focused on non-S&P, Dow, and Nasdaq this week. It seems like the ES and YM want to sell-off to the February lows. And the overall market is in a distribution market trend. Because it is so wide, the sell-offs are especially dramatic. I am long heating oil, unleaded gas, gold, and the euro. This week was Jerome Powell’s big debut and there was a chance that the U.S. dollar market would not like a more tempered approach to the hikes this year. The hike for Wednesday was discounted (heavily expected) and one thing I saw and did not like is the resiliency in treasuries. I am still short the 30-year (ZB) and this is a trade that has a solid fundamental narrative and I like the short side and while the downtrend is broken, overbought shorts are still valid and in play.
Jared — Cryptocurrencies were a big discussion this week at the G20 Summit in Argentina. This is the annual event (at least since the crash of Lehman in ’08) where leaders from the top 20 industrialized economies come together. There were two key things I took away from this week’s discussions (specific to crypto), first being that the G20 considers cryptocurrencies an asset. I think for now, this is a much better option as opposed to a security or currency. This is contrary to the comments from the SEC & CFTC earlier this year, stating by their definition, cryptos were being looked at and planned to be treated as a security.
Next, they plan to roll out regulation this July, acutely focused towards reducing illicit activity. This has been one of the go-to scrutinies against Bitcoin and cryptocurrencies basically forever; it’s easier for the ‘bad guys’ to cover their tracks. These comments initially seemed to have a bullish effect on the market, but after a few days of strength, we once again find ourselves in position where bears have the upper hand.
For a few weeks, NEO has acted as somewhat of a crystal ball, providing a glimpse into the future of where Bitcoin will be headed. As you can see from the chart below, their patterns look incredibly similar. On both charts I’ve identified the February 6th low and also the high of the retracement on the 20th. Through this period they were basically completely in sync, but after the 20th is where NEO picked up the pace. NEO completed it’s Double-Top pattern six days before Bitcoin and has now made a new low against low of the 6th (red arrow).
If Bitcoin were to test it’s February 6th low, that would be a move slightly over 30% (at the time I’m writing this). Despite the fact Bitcoin has been rather weak, we’re starting to see small pockets of strength in the altcoin market. Now if Bitcoin starts picking up some steam to the downside, I have a feeling many of these stronger altcoins will buckle under the weight. So going into the weekend, can we assume Bitcoin will continue in NEO’s footsteps, or will hold it’s ground? At this point, I’m leaning towards the former, so if you have any exposure going into the weekend, it might be time to lighten the load.
Bruce — Expect follow through on the fall going into Monday’s market. We may very well see a Margin Call Monday. I do think we are getting close to the bottom. Be ready to look for bargains if we do thind a bottom and it holds.
Carolyn — Even though I have my timing work that suggests to look for a tradable bounce, this market is still vulnerable to the downside. So many traders recently are still in BTFD mode. If it doesn’t work this time, they will be crawling all over each other to GTFO of the markets. Remember, trade the setups! Even though we might have an opinion, you can’t trade those….You have to trade the setups!! That’s what makes you $$$ with my work!
Henry — 2018 is shaping up to be a very interesting year. The sentiment at the end of January was about as bullish as I can recall. We’ve also discussed the idea that generally, so goes January, so goes the year. There is still a little piece of me that thinks this could happen. Most stocks needed a healthy pullback and the past week has definitely delivered that. Any time your wrap up a witching expiration it’s worth keeping the potential for moves like this in the back of your mind. For me? I’m really not feeling any FOMO here. I’d love to see some deeper pullbacks in the indexes, then I could start buying my MSFT calls for the earnings run. The euro has held up well and gold has finally started to verify the buy side. These are two great markets to play long while we wait for stocks to find their footing.
David — U.S. equities, viewed through the lens of the S&P 500, continue to show signs that they are in the late stages of bullish advances. The leg up from February of 2016 appears late in development and when it ends, it also appears that it could end the broader advance from 2009. While it remains possible that a long-term high is already in place, I continue to see patterns which suggest that the market likely needs one more push to a new all-time high before a protracted sell-off. And for the moment, the sell-off from January looks like a corrective pullback prior to that next advance. I like the idea of the corrective pullback wedging into a triangle before that advance, but am open to it taking other forms. So for now, I’m not doing much in the equities markets other than playing wide butterflies. I also like the bearish view in Bonds.
Danielle — The move i was looking for this week in the S&Ps did not come through. I was looking for XLI, XLF, XLY and the S&Ps as well as the Dow to fire long with their respective squeezes. With the gap down on news on Thursday morning and continued selling, these squeezes have fired short, bringing us down to the 200 sma on most of these daily charts. This is a make or break level. If we can’t hold through here, I will look for the market to take out the February lows. We may bounce here, but I’m not betting on it to the long side. I’m planning to stay 90% cash and ready for anything.
Trade of the Week Update
Danielle Shay says:
See the original setup HERE
Expert: Danielle Shay
Setup: Setup on BAC
Update from Danielle:
As for my BAC position, this was a bet that XLF would fire long, and that did not happen. Instead of taking a loss on this trade, I’ve decided to hold a bit longer to see if it will come back with a bounce at the 200 SMA. That so far, is not coming through, but at this point, I have more to gain by waiting than closing the trade out here.
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