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.
Please you really impressed me. I trade with Jason Bond. He is very good and has a large following ,hecmakes a lot of money trading oversold patterns. I was so tempted to trade HCG and VRX this week but chickened out. I read all your articles and watch you on BNN.Thank you. I am pondering NRI.TO for oversold right now.
The problem with stocks like NRI is that they are thin, thin, thin! No volume–you can get caught holding the bag on these stocks, as you need somebody to buy on the other end– it will be harder to trade. I tend to stick with more readily tradable securities for this type of thing–I want out at a good price with ease. Getting into something with lower volume, BTW, is always easy. Its the exit that’s hard!!!!
Keith – I love it when you write this type of article as it helps to confirm for me what I’m seeing in the markets. I was seeing this move up in oil and gold and thinking to myself – is this for real given stocks in these asset groups tend to end the month of May lower than where they begin based on Equity Clock. That being said, oil continues to move up today and gold is holding. The question is, if we take these investments, when does one get out? When the daily STO and RSI reach >70? Thanks for all you do in sharing your knowledge – much appreciated Keith!
I’d use stochastics – if it reaches its high line OR starts to hook down–sell. I’d also look at neartermed daily chart resistance as a sell point–which in oil’s case is around $50. RSI is a bit too slow for the sell signal, so I prefer stochastics in this type of quick n’ dirty trade as my exit signal. Or a BB top band touch, especially if it touches then hooks down.
Hi Keith…I remember reading an article from Bollinger himself, saying that big moves tend to happen when Bollinger bands narrow. Each of the examples you provide have BB expanding except for the U.S. Long Bonds which are at best about average. True the other indicators all show opportunities.
Also, I wonder about volumes. Would you consider an issue an opportunity if volumes are lower than, say, the 100 MA?
Fred, you refer to the Bollinger squeeze. It implies that volatility is falling–a situation that doesnt last long–so you get a pop after that.
I use that as another signal, but for the purposes of the short termed trade, its not necessary. And yes, I don’t like low volume moves but have not defined a set rule for the short termed stuff we are speaking about.
Great article Keith – thanks. Question – since these are only short-term opportunities – what’s your take on longer term – like the next few months for gold, silver and oil? And can you shed some light on if it’s common for commodities to move together as oil and gold seem to have recent days? Thanks!
Most commodities are in a cyclical bear market that–theoretically, wont end for another 2-5 years. I’ll publish a big picture commodity blog soon–thanks for the idea Jim
Jos Schachter is telling investors to hold off energy and energy services stocks for now. He thinks a break through below $40 on oil is possible this month… followed by another dip. It’s at that point he is recommending a portfolio of bargain buys.
$crb index (now at 177) testing the lower limit of a horizontal trading range, a break of which projects downside potential towards the 2016 low at toward 156.
(Timming the market, 06/06/2017)
Interesting–because from a momentum point of view, the producer sector and the commodity itself (WTI) are neartermed oversold (daily chart, stochastics) –although intermediate termed neutral. My bet is a super short move up again to $50 then after that, much ado about nothing. While its not at all a bullish chart oil is fairly flat looking. I expect a $45-$55 range for the time being. A break of $45 will suggest further downside, but so far that has been a relatively ok support level for the price.