I have mentioned on several occasions that there are scans that I run on a nightly and weekly basis. These scans look at several overbought/oversold indicators and volume. The idea behind the scans was to reduce the number of charts I was looking each night from thousands down to one hundred or so. In order to write the code for the scans, I went back and looked at different scenarios and what the indicators were doing just before a stock or ETF made a big move. Up or down didn’t matter because I have always considered myself to be a trading mercenary—I go with whichever side is going to make me money, the bulls or the bears.
Here’s what I saw…
When I ran my weekly scans over the weekend, the bullish list caused me to sit up and take notice. There were 14 stocks/ETFs on the bullish list, but when you inspect the list, only one is an actual stock. All the rest are inverse ETFs or bullish VIX ETFs and even the bullish VIX ETFs is a bearish sign. I have posted the entire bullish list below.
What these results suggest to me is that the market is getting ready to go through a rough patch. I am not saying that the market is going to crash or that there is a bear market coming. What these scans were designed to do was to alert me when a stock looked primed for a drawdown over the next month or two. The daily scans are designed to work over a week or two and the weekly scans are designed to work over a month or two.
Do I think you should run out and sell all of your equity holdings? Absolutely not. Do I think you should take some action to take some profits off the table or at the very least buy one of these inverse ETFs in order to hedge your portfolio? Absolutely. Which one should you buy? That depends on what you have in the rest of your portfolio. If your portfolio is made up primarily of large-cap stocks, one of the inverse S&P ETFs would make a better hedge for you. If your portfolio is made up primarily of tech stocks and smaller cap stocks, then one of the inverse QQQ ETFs is going to work better as a hedge for your portfolio.
September and October have been two of the worst months for the market from a historical perspective. Now the market has to deal with the Fed potentially hiking rates or at the very least taking a more hawkish stance on interest rates. It is also worth mentioning that the next earnings season will be starting in a few weeks and the expectations are pretty high right now.