A Safe Trade While The Market Is At A Crossroads
Last week, I told you I was concerned about the state of the market leadership. I still am, but it is possible the technical position of the market is improving. More on that in a minute.
Below, I’ve shown a daily chart of Invesco QQQ Trust (Nasdaq: QQQ). This is an ETF that tracks an index of tech stocks. QQQ has been the market leader of the bull market that started in March 2020.
There are a few things about this chart that I want to show you. First, let’s start with the blue dashed line toward the top. This is the support level I identified last week. Last week, QQQ crossed below that line and may have bottomed.
Now, here’s where we could see the technical picture could be improving. Looking at the chart, the price pattern shows a steep decline with a potential two-day bottom forming. In particular, there was an “up” day last Tuesday (May 11) followed by two down days and a rally. Then the selling stopped by Thursday.
This could represent a short-term selling climax, and we could see prices move back up from this bottom. In fact, we’ve since seen some recovery in prices. However, there are still a number of bearish factors to consider, and it is equally possible that QQQ could fall from here.
What My ITV Indicator Is Telling Me
At the bottom of the chart, my Income Trader Volatility (ITV) indicator shows a bearish pattern. As my Income Trader subscribers know, when the indicator (red) crosses over above its moving average (blue line), it often precedes declines. The ITV signal is worrisome.
If QQQ doesn’t rally back above support by the end of the week, it’s likely that QQQ will decline to $300. That’s about 7% below the recent price and would be about 13% below the all-time high.
In other words, the decline would represent a pullback of at least 10%. This would be the fourth pullback of that size since last September.
To be honest, that’s a significant number of declines in less than a year, and it shows that the bull market is most likely near its end. The three prior pullbacks ended as traders rushed into the market, many of them armed with their pandemic relief stimulus checks. This time is different.
There is unlikely to be another stimulus. On top of that, governors in some states are ending the enhanced unemployment benefits. The absence of stimulus could allow the pullback to continue and develop into a bear market. I’m watching for that possibility, but, for now, there are still trading opportunities.
How I’m Trading Right Now
As I always point out, while it’s important to keep tabs on the market (and where it may head next), there are ways to successfully trade in any market. And that’s especially true with the income-producing strategy we use over at Income Trader.
For example, I recently recommended a trade in The Clorox Company (NYSE: CLX). The stock is on an ITV “buy” signal and at support.
CLX is attractive in this environment since there is little risk in the company’s business model. Consumers will be buying cleaning products even as they pare back purchases from companies in the tech sector. For now, large caps remain attractive, and a trade in CLX is the most appealing opportunity I’ve seen in several weeks.
Now, many traders as well as regular buy-and-hold investors would take a look at a stock like CLX and note that it has traded in a relatively narrow range. And traders seem to be holding onto large-cap stocks in mundane industries while they sell the tech stocks.
This makes it an appealing low-risk investment for those people. That’s fine, but with our strategy, we can do even better than that…
With my plan, we’ll be in this trade for three weeks or less. And what’s more, as soon as we execute the trade, we’ll get paid immediately.
In fact, we’ll earn more in income than regular investors would get in three quarters from dividends. And if all goes according to plan, we can repeat a trade like this again and again…
I can’t emphasize enough how important it is to be able to get in and out of trades in this market right now. We don’t know for sure how long this ride will last, and my strategy offers a great way for investors to hedge their risk while earning extra income.