There’s Still Opportunity in This Market (Here’s Where)

This Market

It was another good day to be sitting heavy in cash. Momentum is red. Cash is still your best friend.

The Dow Jones, S&P 500, and Nasdaq all imploded in what can only be described as a retail and institutional panic. In addition, Walmart (WMT) and Target Corporation (TGT) are plunging after dismal earnings reports. 

The companies slashed profit expectations due to inflationary concerns and growing uncertainty around the U.S. economy. Target’s selloff fueled a remarkable grind lower across the market.

Again, momentum remains red. Cash is your friend. And Bull Traps and Dead Cat bounces remain the norm. Right now, everyone and their parents are dumping stocks. Valuation compression is accelerating. And the Wall Street Journal just warned about a “Lost Decade for Stocks.”

Oh, how the sentiment has shifted. If only they followed my momentum readings. Despite all this bearishness, there is still ample opportunity to find trades. You just need to know where to look.

Let’s Make It Easy For You

Step One: Visit Finviz.com

Step Two: Click Screener

Step Three: Select “Industry” and choose “Stocks Only (ex-Funds)

Step Four: Click Technical and Select “New High” on 52 Week High/Low

You will produce a screen of every stock that has hit its 52-week high today. 

These are likely all high-momentum stocks (with a few takeover targets hitting a bid). Look across that field of companies hitting new highs. There were only 49 today out of 8,500 public stocks. 

Seven are in oil and gas exploration (Devon Energy, Hess, Amplify Energy, Exxon Mobil, Shell, Cenovus, and Pioneer). Six are in energy midstream services firms. There are specialty chemical companies, refineries, and international utilities. 

These sectors are handling inflation, consumer demand, and global headwinds well. And as money pours out of retail in a manner that suggests a recession lies ahead, a lot of capital continues to spill into these sectors. 

Despite today’s selloff in energy, remember that the economy is facing shortages of key petrochemicals, oil, and natural gas. Therefore, I recommend that you consider using the strategy of selling put spreads. Do this instead of focusing too much on long-only calls that have a lower probability. 

What Will Weaken in This Market

As I’ve noted, valuation compression remains the key trend of 2022. It’s not surprising to see stocks trading at 25 times revenue. Everything is experiencing price discovery. Bitcoin technically trades at infinity times revenue. Avoid it now.

I’ve said that this market has a long way to go. As the Fed continues to battle inflation and large corporations like Walmart and Target struggle to manage costs, this market has a significant way to go lower.

I continue to look for short-term opportunities, but I’m still very bearish in the technology, communications, and cyclical markets. Drill down further, and there are extreme challenges ahead of Mall Real Estate Investment Trusts (REITs), apparel, asset management, computer hardware and services, restaurants, and software applications. 

It can be costly to short with options or to borrow-and-short stocks in this market. Therefore you can turn your attention to day-trading or owning inverse ETFs that focus on these individual sectors. Biotech, hospitality, cyclical retail, and more still have a long way to go downward. I’d avoid any temptation to buy the dop while momentum remains negative.

Remember, Cash Is a Position

I want to remind everyone that cash is a position

It’s hard for some people to think about selling stocks that they’ve owned for a while due to tax purposes. I’m not talking about going to cash in long-term investment portfolios that would extract taxes. I’m talking about your trading account. 

In a trading portfolio where you plan to swing trade or own stocks for less than a year, you need to consider the importance of cash as a pure position. You need cash when the market sells off to have buying opportunities. 

You need to protect cash to ensure you have the capital for your key expenses. But cash is also a strong performing asset when interest rates rise, AND the market sells off. We’re experiencing a dramatic race to cash right now. I’ll show you a cheap way to hedge the market with cash instead of just holding dollars in your account.

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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