Negative Momentum: Now The Pain Begins

negative momentum

Momentum went negative this morning. Cash is your best friend.

The next two weeks are likely to produce a large exodus of capital from the market. I project that hedge funds and CTAs are dumping. I expect that ETFs (exchange traded funds) are spilling stocks. While we might see a little bit of a push higher tomorrow, thanks to short covering, we are now in “Game On” conditions. We are shorting this baby into the ground. Saddle up. It’s time to be greedy as a pig. I put together a full report on How To Trade Negative Momentum. Pick up a copy. And let’s go…

Shorting During Negative Momentum

Today, the markets went negative after energy traders dumped stocks and took profits. I think WTI crude could peel down to about $85 per barrel. And – with that selloff – speculators are walking away ahead of September. Historically, September is the worst month for the markets back to 1927.

There are very few positive economic stories right now. The jobs report on Friday might look bad. The Biden administration is already warning that the numbers could be “abnormal.” Meanwhile, the Fed is taking a battle axe to the market. The odds that the Fed hikes interest rates to 4% in February have jumped to 21.7%.

That figure was about 0.5% in early July. The market is finally starting to price-in the risk of an aggressive move on interest rates. And the S&P 500’s break under support of 4,000 today is another major concern for traders. Me? I’ve been in cash since last Monday. I’m shorting the S&P 500, the Russell 2000, and the Nasdaq 100. But you probably want me to talk about the best stocks to short right now. So… let’s do that.

Shorting Retail

The current situation for retail is ugly. Earnings season is concluding. Americans are putting too much money on the credit card. And it will remain a challenge for these companies as interest rates move higher.

I think it’s a good time to short Abercrombie & Fitch (ANF). This hot-garbage company is facing several challenges. At the core, this has really faded as a momentum stock every time that we get a negative signal. With shares now hovering near a 52-week low, it’s time to play the trend. I think you can look at $15 puts for October as an entry. You’re trying to secure a 25% to 30% gain in as little as a week.

ChargePoint Charges Lower

ChargePoint (CHPT) is an unprofitable mess of an energy infrastructure company. Every time that momentum has tanked, this stock has plunged. Back in April, when momentum went negative, CHPT shares plunged from $20 to about $9 in six weeks.

I expect more of the same. As you can see on this chart, CHPT follows our signal to perfection. Yes, there is money deployed by Congress around alternative energy – but this company is absolutely terrible. The parents of the executives should be embarrassed. The October 21 $10 put is attractive as a short. Maybe consider one contract.

Shorting Utilities

Finally, this recommendation will stun you. I’m recommending that we short utilities stock, despite the perception that this is a “safety trade.” Today, the S&P 500 Utilities ETF (XLU) flashed a very similar pattern to what we saw in January and April. There is ample downside right now to the XLU at around $70 per share. You can buy a contract or two on the XLU September 23, 2022, $74 put.

Remember, shorting is very difficult. If the Fed pivots or China drops another $165 billion from the sky, this market can squeeze higher. But I caught the fifth negative momentum signal of 2022, and each time, we’ve seen large downturns on every single equity and ETF mentioned in this edition.

If you want to learn more about how to trade negative momentum, I’ve got a report lined up for you. Inside, I break down all my favorite short strategies, upside on inverse ETFs, and much more. I’m making it available to you while momentum is negative in this market. You’re probably not going to see another opportunity to short this market like what’s happening now.

So, pick up your copy of How To Trade Negative Momentum today!

How To Trade Negative Momentum
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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