Finding Phoenixes or Canaries?

Hey 5-Star Trader,

The end of May is around the corner, and with that in addition to the fact that the stock market has had the longest weekly losing streak since the 1930s, you’d think the indexes could at least find some footing. On one hand, it’s just so rare for the indexes to continue falling this quickly and to this extend, but on the other hand, the catalysts that have brought us to this moment are unique. While there are certainly comparisons between the Dotcom crash, the housing crisis and the short-lived Fed tightenting cycle in 2018, history won’t repeat itself but it certainly can rhyme.

I discussed several of these comparisons and more, last night during my Shorting Canaries in the Coal Mine Webinar. Click here to check out the replay!

So, where do we go from here? 

The indexes have started to bounce, ever so slightly, as short sellers get a bit squeezed out of positions after the indexes hit yet again another new low last Friday. Since then, we’ve just seen volatile moves back and forth, without a confirmed direction in either case. Due to the consolidation we are seeing, there are significant squeezes setting up in the Nasdaq and S&P, which will likely break in the direction of the trend. That trend, is and remains lower. 

But, I’ve been hitting the short side pretty heavy and at some point in time, there should be a major short covering rally. At least, according to current market internals, including the high put/call ratio, overall sentiment and historic lows, it should be close!

In either case, it’s critical that traders stay nimble, because once you become convinced of a particular outcome, that is exactly when the market can come and show you who is in charge.

That’s why I always find it helpful to consult the Phoenix Finder Turbo. It’s easy to get caught up in the wiggles but following the strength of the trend, particularly when the trend changes, is my favorite way to identify which direction the market is moving.

Phoenix Turbo – Big Picture

78-minute chart

5.25.22

Click image to enlarge.

As of now, we’re starting to see signs of Phoenixes rising from the ashes. Consumer staples (XLP), Financials (XLF), cybersecurity (HACK), housing (XHB) and even the SPY’s are attempting to stage a bit of a comeback. But the real question is, how long will it last?

I can make predictions of course, but Phoenix will give signals in either case. I’m betting it’s a short-lived rally, one in which we will begin to see the canaries roll first will take place. I’m eyeing in particular the sectors that have been the weakest, including cybersecurity (HACK), housing (XHB) and consumer discretionary (XLY) roll first, but it hasn’t happened yet! 

Afterall, we’re in a bear market. There will be bear market rallies. When this occurs, it’s important to be aware that you could be caught on the wrong side of a short squeeze, but also that having tools, setups and strategies to navigate these volatile times to help improve your edge can be the difference between going with the trend or being caught on the wrong side of the trade. 

That’s why, next Saturday, June 4th, I’ll be teaching traders my top tricks and tips for trading in this volatile, bear market. The class comes with not only access to my Phoenix Finder Turbo, but also my hand selected Phoenix Folios, which are my personally curated lists of top mines to search for trades in. 

Which sectors and industries are hot changes with the times, and to say it’s shifted this year is the understatement of the century! As such, strategies, watchlists and methods we used last year and for many years prior, all need to be revamped. I’ll be teaching all of this and more in the upcoming class. Click on the link above to learn more! 

-Danielle =) 

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