With the beginning of the new year, we said goodbye to our favorite “buy the dip” market we all knew and loved. Let’s take a look at what has been happening and where I’m setting up potential plays.
Market overview – Starting with the Big Picture
Throughout the first two months of trading in 2022, we’ve been in an increasingly volatile situation. This is evidenced by the Volatility Index (VIX) trading above 25 (and, as I write this, it has been above 25 for almost a month). The VIX has frequent overnight gaps, largely caused by a news-based catalyst that leans to the fear-based side.
It doesn’t appear that March is going to give us a reprieve anytime soon, as inflation numbers will hit again this week. The Federal Reserve plans to raise rates at the March 15 meeting, and the war in Ukraine shows no signs of stopping.
This weekend as news hit that the U.S. was considering a ban on Russian oil and President Vladimir Putin declared sanctions by the West to be equal to a “declaration of war,” the indexes futures yet again gapped down significantly over Sunday evening. Futures ended up working off most of the news by the market open Monday, but what followed has been typical of what we have seen this year. Upon the cash open, sellers immediately came in, sending indexes lower and eventually breaking those overnight lows put in on Sunday. This type of price action is indicative of a very weak market with a lack of confident buyers.
What this means is that simply buying the dip on trending stocks is a strategy I’m leaving on the back burner for now. So, what am I doing instead?
In these kinds of markets, it’s critical to recognize relative strength to the upside and relative weakness to the downside. This is because when the market rips higher, the best bet is selecting a top ticker. When the market begins to fall – selecting the weakest link is the place to be.
Of course, you can use charts, watchlists, and scans to identify these strengths and weaknesses, but I like to use my Phoenix Finder. Check it out below:
This is a daily chart (above) of my Big Picture Folio on the Phoenix Finder. This grid compares relative strength and weakness in the top indexes and sectors so I can determine which areas of the market are trading higher, plus which stocks I can potentially jump on at the right time. The top chart shows the daily chart pattern on the Sector SPDR (SPY) ETF. The tickers listed in the grid are notated on the right hand side. The percentage listed is percent from yearly highs.
What information is now available to you?
From this grid you can glean quick, overall information about the health of the market.
NQ did enter a bear market and it’s currently down 21% from highs.
Next, while cyber security stocks are down 18% from highs, they have shifted higher over the course of the last week. There may be an opportunity in this shift.
Additionally, energy has remained incredibly strong, despite the overall state of the market. Health care, staples, and industrials don’t look terrible.
What can you do with this information?
How can you play the information delivered by my Big Picture Folio on the Phoenix Finder?
Well, everyone keeps asking, “Is it time to short energy?” Personally, I am not going to stand in front of that freight train. Energy has been on an incredible rally due to geopolitical forces, primarily the war in Ukraine. The lower supply, plus increased supply chain difficulties, plus the potential talk of cutting off Russian oil has sent this sector screaming higher.
While I do think there is room for potential momentum trades higher, most stocks like Chevron (CVX) are very extended. There could be another potential $5 of upside in something like Exxon (XOM), or $10 in OXY, which Carl Icahn just sold a large stake in while Warren Buffett added a position. The majority of the moves I normally target have already been had in energy. Investing in something nearing new, media-driven highs is typically never a good idea. But, if you already have it – enjoy the ride! I am definitely not shorting it here!
So, what am I eyeing? The stocks I like are very few and far between, but there is nothing wrong with slowly adding to a long-term portfolio. Costco (COST) is one of my favorite long-term buys right here.
For now, most of my options trades are bearish while targeting Phoenix stocks to the upside. I’m short the Nasdaq in the Stacked Profits Mastery program and I tried to pick up a relative strength long play in the semiconductors. But, with more news of an amped-up semiconductor shortage due to the invasion of Ukraine, these stocks are getting hit hard and it’s not time yet to buy more.
Want to uncover more trades?
In my Stacked Profits Mastery you can find daily market updates about the top stocks I’m watching, my weekly watchlist, and trade alerts on Phoenix stocks – when they light up. There are also my exclusive, in-depth Phoenix in Focus Members ONLY Research Reports on top actionable tickers right now! You’ll also find trades in spots where I identify opportunities. I do the research and analyze the data for you – you can take it and run with it. Whether you’re interested in trading options, stocks, or just want some actionable market insight, click HERE to learn more.