I don’t do a lot of short term trading. But on occasion, I like to look at the odd opportunity that seems to offer a decent upside for a neartermed price swing. When you are looking for a short termed move, you can play counter-trend swings. You don’t have to be looking for the base breakouts or uptrends like you do within your longer termed trades.
If you are going to trade something within a neartermed horizon, you should still look for something that doesn’t offer too much potential for neartermed risk. You don’t want any black swan events to zing you. So, despite the opportunity that Home Capital (HCG-T) recently presented in its capitulation washout, I for one would not have traded it. There’s just too much going on in that situation to make it a safe trade. Hindsight tells us that buying it at the $5/sh capitulation bottom was a great point to enter—but the fundamentals are questionable for the company at this point. Sure, they may work their way out of their current mess, but you could get stung on a new bad piece of news that might appear overnight. To me, it’s not worth the risk.
HCG aside, you and I could play other oversold situations – even if our mid termed outlook for the given stock or commodity are not bullish. To identify such a situation its best to look for oversold short termed indicators. Again, you don’t need a positive trend or bullish breakout- just an oversold movement within a stock or sector that might have been punished too much. Moneyflow is not important here, nor are moving averages —you are here for a good time, not a long time (as the rock group Trooper sang). For short termed movements, I like to focus on the quicker moving indicators that I have posted in the past on my “Short termed timing System”. These indicators are:
- Bollinger Bands (BB volatility levels)
- Stochastics (a very quick moving momentum indicator )
- RSI (mid termed momentum if you use the 14 day default setting).
I’m looking for lower BB touches, and hooks off of the lower zones of stochastics and usually RSI too. I am strictly looking at daily charts. Its great if we can see a candlestick reversal bar in addition to our indicators, but that’s not essential.
Let’s take a look at a few oversold markets that might be of interest for a neartermed trade – now or in the coming days or weeks. Keep in mind that any short termed trade noted here should be considered as a speculative trade only—thus, only “funny money” should be used –i.e. that portion of your capital that you deem to be risk capital and willing to accept the greater potential of losses on the trade. Use an “uncle” loss point on the trade should you enter it—i.e. decide how much you are willing to lose.
Massively oversold stochastics and RSI compliments a deep move into the lower BB. No hook up yet from the momentum indicators. No positive candlestick yet. Gold could reverse any day now. It bears keeping an eye on this trade for a neartermed pop.
Long US bonds
Stochastics is oversold and possibly hooking up. RSI never got too oversold for the TLT long bond, but the price is looking to be bouncing off of the lower BB. It may be time to step into the long bond now or in the next little while. Note that bonds move into seasonal strength soon, so this could be a mid-termed trade as well.
Silver is massively oversold and it appears to be hooking up on every neartermed trading indicator on this chart. Intriguing potential for the neartermed speculators out there.
Oil is hooking up from oversold conditions across the board. A rough looking (not textbook perfect) hammer formation 2 days ago suggests that as a potential washout day for oil. It’s probably good for a near termed pop as it heads into the final part of its seasonal period of strength. I’d give it $50 then sell it.