The 20DMF closed its short signal yesterday and turned neutral when the Money Flow indicator crossed back into positive territory. In the current context, the most probable signal will be again a short signal.
The NQ8 sector bounced from its zero level, but
we can see below that small caps investors started to cover short positions before the sector started to bounce up.
This is when I decided to sell cash covered puts on some of my favorite long stocks such as BCRX. This decision was out of conviction, because large investors were not that strongly buying BCRX.
Coming back to a broad market view, as we can see below, most of the long trade ideas issued buy alerts yesterday. This is typical of an oversold bounce.
The indicator that calculates the number of days until a short signal is issued also displayed a bounce that is very similar to the two previous bounces. Hence, we should expect some upside continuation from here,
even though the NQ100 Futures show overnight weakness.
It is interesting to see below that most excitement was displayed for momentum and retail stocks, which had been the most down in the past days. Gold miners were relatively less interesting simply because they had attracted some rotation money during the downtrend.
You will also note below that the Cumulative Ticks did not display a very healthy accumulation yesterday.
Conclusions:
This widely expected oversold bounce occured, but there are quite a few signs that tell us to be cautious. Let's not forget that the 2022 expected earnings growth is in the low single digits and that the Fed wants to raise rates due to a higher than expected inflation move.
This week will be a heavy earnings report week for some mammoth stocks and on Wednesday, the FOMC announcement will pave the way for future rates hikes. Nothing investors should feel confident about in the current environment.
In the current environment, the best is indeed to refrain from buying the bounce in stocks that display a negative EV pattern. A few examples are shown below.
As a matter of fact, in the Filters section, below the small biotech stocks, I have added the two following filters:
1. The main stocks for the Renaissance IPO ETF
2. The man stocks for the ARKK ETF
This way we can quickly monitor what momentum investors are doing.
