We will post indices analysis later in the week, hopefully just around a turning point of some nature. This update will only have the ETF picks.
A couple of notes before moving on to the weekly stock / ETF analysis. The overarching sentiment around the market this past week seems to be that U.S. equity markets are ripe for a pullback. Generally, I am not one to agree with crowds, but I believe a market pullback is very near. Here are a couple things I am looking at:
A daily chart of the SPY from the most recent swing high to swing low shows that we have successfully retraced 0.618% of the recent market selloff. This just so happens to coincide with the daily VPOC taking into account one year of price history. I don’t think we trade higher through these levels without first some pushback. I don’t think a “crash” is imminent but a pullback is highly likely and quite soon.
Thus far the IWM small caps have retraced almost 50% of the major selloff from Q4 of 2018. I expect the Russell to struggle with this level as well as the 61.8% retracement as once again you are fighting against a confluence of Fibonacci levels coinciding with High Volume Nodes.
Finally, the CBOE Volatility Index (VIX) has fallen to levels where we generally expect a bounce. While rising VIX doesn’t always mean a market move lower, it often turns out to be the case.
GLD SHORT
| DIRECTION | BUY ZONE | SELL ZONE | RISK/REWARD | VEHICLE |
| SHORT | 124-125 | 121-122 | -.50/2.50 | OPTIONS |
Gold made an uninterrupted move higher last week and ran into HVN resistance. It stretched outside of the upper bound of the value area and likely will come back into the 23.6% retracement which coincides with another HVN as well as a previous gap higher. This is a trade I fully expect to mean revert in the coming weeks. I choose to play this via GLD Puts into the end of February but other ways include a triple levered short ETF, shorting a gold miner, or trading futures.
STNE LONG
| DIRECTION | BUY ZONE | SELL ZONE | RISK/REWARD | VEHICLE |
| LONG | 22.50-23 | 29-30 | -.30/7.00 | OPTIONS |
A relatively new IPO, STNE disappointed investors from the outset. Falling from $32 to $16 saw the stock cut in half in less than 2 months. I think however, this bounce back from the lows is the real deal. Looking at this from an intraday perspective shows an inverse head and shoulders pattern has taken shape. If we get follow through in the coming weeks higher it should make for swift movement to the upside. I am long this from lower but would look to add options on any pullback that holds the level of confluence of the right shoulder which coincides with the lower bound of the value area.
REZI LONG
| DIRECTION | BUY ZONE | SELL ZONE | RISK/REWARD | VEHICLE |
| LONG | 22.25-23 | 25-26 | -.50/2.50 | OPTIONS |
While I hesitated to include REZI in this week’s list as a long trade, I couldn’t pass it up as there is potential for fast upside. For this stock to work as a long, we need to see price close above the VPOC in the early going this week. Should that be satisfied I think REZI moves quick to $25-26 level. Expect a rejection off the upper value area bound, but as long as POC is held, this should be a good long opportunity. I like the risk reward profile here.
TV LONG
| DIRECTION | BUYZONE | SELLZONE | RISK/REWARD | VEHICLE |
| LONG | 12.50-13 | 14.50-14.75 | -.25/2.00 | OPTIONS |
I don’t normally make a habit of taking trades counter to the primary trend, but a case can be made that $TV has recently broken the downtrend. Further, with a relatively pronounced HVN just below these price levels we have a defined support from which we can play from. Also we have had the RSI making higher lows for some time, signifying a bullish divergence from price. I like this higher, but am paying attention to earnings which are tentatively scheduled for Feb 21st.
GWRE LONG
| DIRECTION | BUYZONE | SELLZONE | RISK/REWARD | VEHICLE |
| LONG | 89-90 | 95-96 | -.50/5.00 | OPTIONS |
GWRE gapped up above the one year VPOC as well as broke above the downtrend line on Friday. Assuming this gap holds, getting long here via options is worth the risk/reward with defined support immediately underneath current price levels.
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