Weekly Update: The Market is Oversold
Good evening, and welcome to this week’s edition of Stealth Trades!
Stocks finished lower with major indexes down roughly 2% for the week as of the time of this writing on Friday morning.
The S&P 500 now trades below its 200-day moving average – a long-term trend level watched heavily by institutional investors.
It appears that our call several weeks ago saying the high was in for the year will likely hold true.
Right now, the market is highly oversold.
I expect to see at least a short-term bounce higher from here as most stops were likely triggered on the move below 420 on SPY.
Many investors are throwing in the towel. This week’s close below support and the 200-day is something overly optimistic bulls did not think we would see.
But I believe we have a buying opportunity here.
As I outlined last week, my ideal buy point would be around the $400 level after a final flush lower. That is roughly 2% below current prices.
Whether we see a new bull market develop from here or simply a near-term tradable rally is yet to be seen. But I believe there is money to be made over the next several weeks.
The short side is too obvious. The gutsy contrarian play is buying stocks showing high relative strength and coming out of tight patterns.
One area we are still seeing a lot of strength is nuclear and uranium stocks.
Uranium Energy Corp (UEC), for example, has not only held its short-term 21-day moving average, but it is trading near all-time highs.
It has a relative strength score of 98/100. In other words, it is outperforming 98% of publicly traded stocks in recent months.
UEC looks buyable here or on any pullbacks to its 21 EMA (blue line on chart).
I am out of town in Palm Beach and away from my trading desk until tomorrow morning. I plan to run some scans over the weekend to identify the strongest names that have held up well during the recent pullback and have the greatest chance of moving higher on market strength.
We will be discussing these opportunities in the live Stealth Trades and War Room sessions next week. I’ll see you there.
Best wishes for your trading,
