The recent trade ideas and market commentary on RSOTC have been primary focused on precious metals and commodities, as that has been where my focus has been lately. I have started searching for new equity trade ideas and with the recent sharp rise in the broad markets, finding long-side trade setups offering both objective entries and attractive risk-to-return ratios (R/R) has become very difficult. As always, I strive to present a balance between long & trade short ideas and will continue to do so going forward. With that being said, the few attractive trade ideas that I’ve come across so far this week (GMCR, AVGO & ILMN) have all been short trades.
note: An email notification of the AVGO short trade setup & entry was not sent out. That trade idea, along with charts can be found on the home page of RSOTC.com. The ILMN short trade idea will follow shortly.
With the short, intermediate, and long-term trends on most US equity indices still bullish, short trades remains aggressive, counter-trend trades at this time. As always, do you own due dilligence (DOYDD) on each trade you enter and always trade inline with your own risk tolerance and trading style. As far as my outlook for the US equity markets, many of the breadth divergences, such as the percent of stocks trading above their 200-day moving average (below) continue to build and have now reached extremes not seen since the final stages of the previous bull market leading up to the late 2007 peak. These divergences have been pointed out for a while now and actual have resulted or preceded several healthy corrections in US equities but the fact that each correction has been followed by another, essentially continuous set of divergent highs (i.e. stock prices moving higher while the % of stocks above their 200-dma moves lower) warns of a the likelihood of much deeper and prolonged drop in stock prices as this is a direct indication that fewer and fewer stocks are lifting the market. However, divergences are not a sell signal, merely an indication or waning momentum and a likely (but not guaranteed) precursor to a trend reversal. The take-away from these powerful divergences, as mentioned above, is that they may help us to gauge the extent of the next move lower in the US equity market, once a likely trend reversal has become evident, i.e.- once sell signals have been triggered.
$NAA200R Dec 2nd
$SPXA200R Dec 2nd