After the frightening plunge in Stocks on Friday, the action today could NOT have been better. Major equity indexes, which spent most of the day lower, closing in positive territory. Even more encouraging was the Russell 2000 Small Cap Index (RUT) which was the strongest.
The RUT closed up 6.93, a nice gain of nearly 1/2 percent on the day while the Dow Industrials (Dow) eked out a small gain. Other key indexes such as the Nasdaq 100 and S & P 500 lost less than 0.1%. This is a good sign that the swoon on Friday is not likely to extend. Had RUT closed down hard, it would be appropriate to question the “NEW HIGHS” thesis. described at length in prior articles.
In fact, Friday’s trading was healthy for the Markets. The rally from Christmas Eve has been unusually sharp and robust. As a result, investors switched from Panic to Complacency and Greed. Now that a bit of Panic and Fear has asserted itself again, the fuel for a continuation of the Rally is ready to be ignited.
The rise in both the Volatility Indexes, which are often considered measures of FEAR, show how quickly investors went from Greed to Fear. Markets rally when Bearishness turns to Bullishness.
New Leadership is Ready To Drive the Markets Higher
We have noted the leadership of very key sectors early on. The earliest was on February 6th. “Chipmakers Poised To Lead Market Higher”. (https://markonomics101.com/2019/02/06/chipmakers-poised-to-lead-nasdaq-higher-chart-of-the-day-13/).
Most recently, we noted the importance of the Mega-mega market Capitalization companies dubbed “The Four Horsemen”. “Four Horsemen Pull Markets To New Highs”. (https://markonomics101.com/2019/03/21/four-horsemen-pull-markets-to-new-highs/).
A slide show of some very interesting trade ideas is below. These are a few of the companies that looked poised to Break Out. Some are from NEW sectors, including Financials and Gold. One chipmaker NVIDIA looks ready to join those that have led the market higher.
The key takeaways are as follows:
- AIG, Goldman Sachs (GS) and Citigroup are Financials. This Sector MUST join the rally or it will be curtailed. Fortunately, the odds of these companies breaking out positively is high. The bearishness on financials, in light of the inverted yield curve, is very, very high, giving them a lot of fuel to rally MUCH higher.
- Yamana Gold is a junior producer. Gold itself has not yet broken out, but several miners appear to setting up for sharp moves higher.
- NVIDIA is a Chipmaker. Its ROUNDED BOTTOM and strength in the sector are very positive for this company.
Good Trading Practices
If you do take a flyer in any of these companies, keep the following in mind to decrease your risk:
- As the VIX and VXN decline, the cost of Hedging will decline. Buying some protection through put options is a good way to go.
- Set parameters. If you buy an equity completing a ROUNDED BOTTOM or CUP and HANDLE, set your sell stop to either an adverse break in the pattern such as a breach of the lower boundary of the Handle. My recommendations are $42 for AIG, $180 for Goldman Sachs, Yamana Gold $2.40, NVIDIA $165 and Citigroup $60. These are guidelines only.
- Don’t get GREEDY. No one ever went broke taking profits early.
Some sectors should be completely avoided for the time being. Michael Hoeft recently looked at the Casino sector and makes a powerful case for lower prices. “Casinos Are a Terrible Bet”. (https://markonomics101.com/2019/03/25/i-wouldnt-bet-on-the-casino-industry-to-rally-if-i-were-you-chart-of-the-day-17/).
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