In reviewing various watch-lists today, one of the few red sectors among a sea of green is the Specialty Finance sector (iX1520 in the TC2000 charting platform). While today’s breakouts above the primary downtrend lines in SPY, QQQ, SOXX, & other key indices & sectors is 110% bullish (until & unless it fails), there aren’t many securities out there offering clearly objective short entries today… other than this sector & its leading stocks.
iX1520 daily Sept 19th
As the daily chart above highlights, the Specialty finance sector put in a large divergent high yesterday followed by a large & quite obvious bearish engulfing candlestick (so far) today (i.e.- to be finalized at the close, as long as the body of today’s candle completely engulfs the body of yesterday’s candle). With just 2 hours to go in the trading session, I figured that I’d pass these trade ideas along now as barring a strong reversal & stick save (at the 4 pm close), these bearish engulfing sticks are likely to be finalized today.
Additionally, this meshes with my current bearish outlook & positioning for long-dated Treasuries (i.e. the TLT/ZB short trade) & expected bullish outlook in long-term rates; i.e.- 10-30 yr Treasury yields, and hence, mortgage rates, higher… despite the Fed embarking on a new rate cutting cycle & with a bang (50 bp) to boot.
The first of the three largest components (by market-cap) of that sector, all of which are mortgage-related companies, is RKT (Rocket Companies, Inc.). RKT offers an objective short entry here with a tight stop above today’s bearish engulfing candlestick + recent divergent high. Rocket Companies, Inc., a fintech holding company, provides mortgage lending, title andsettlement services, and other financial technology services in the United States and Canada.
RKT daily Sept 19th
UWMC (UWM Holdings Corporation) engages in the residential mortgage lending business in the United States. The companyoffers mortgage loans through wholesale channel. It originates primarily conforming and government loans. UWMC offers an objective short entry here following the recent bearish engulfing candlestick + recent divergent high and subsequent minor uptrend line break.
UWMC daily Sept 19th
(COOP) Mr. Cooper Group Inc., together with its subsidiaries, operates as a non-bank servicer of residential mortgage loans in the United States. The company operates through Servicing and Originations segments. As with RKT, COOP offers an objective short entry here with a tight stop above today’s bearish engulfing candlestick + recent divergent high.
COOP daily Sept 19th
While I know that very few care to short any stocks today & even fewer will take these trades, (which is fine, as I always say pass on trades that don’t mesh with your outlook on the security, your risk tolerance, and/or trading style), I can say that even if the odds of these trades panning out (hitting one or more price targets before the stop is hit) isn’t extremely high based on today’s breakouts in the major indices, both the technical case to short all three here is pretty solid & more importantly, the R/R is well-above average as the loss potential, with stops above yesterday’s highs on RKT & COOP, pales in comparison to the profit potential to the price targets, especially the deeper targets.
Essentially, shorting bearish engulfing candles following big divergent highs & overbought conditions when most only wanted to buy & few wanted to short, were the same criteria we used to short QQQ, SOXX & NVDA at their recent all-time highs a couple of months ago (and covered all exactly at their recent lows on Aug 5th…also based on solid technical analysis to nail some of the most significant trend changes in years). As with any trade, these either work out or not… and that is what these (very tight) stops are for. Just passing along what stands out today.