We're Buying the Weakness
Editor's note: Timing is everything...
With the volatility we've seen in the markets these past few months, investors have been searching for opportunities to profit without putting their hard-earned gains at risk. But this ongoing uncertainty doesn't mean you can't consistently find winners...
In fact, Ten Stock Trader editor Greg Diamond believes today's chaotic price action could create plenty of buying opportunities for investors who are prepared.
In today's Masters Series, adapted from the March 10 Weekly Market Outlook issue, Greg details how you can navigate today's roller-coaster market...
We're Buying the Weakness
Wave IV setups are tricky... and they usually take time to unfold.
Right now, we're seeing big moves up and big moves down, rather than steady declines. Those are typical Wave IV characteristics, which mark the end of corrective patterns.
We're continuing to look at various scenarios within this broad pattern. (In some stocks, the correction might have already completed.)
And with countless examples of divergence, there's still plenty of investor pessimism... As of this writing, the CNN Fear & Greed Index continues to signal "Extreme Fear," at 21.
But remember, this is all happening within a corrective bull market. And as I'll discuss, we could be very close to a bottom... and a number of excellent buying opportunities.
Let's dig into this by looking at the technical charts. Here's the daily chart for the iShares MSCI USA Momentum Factor Fund (MTUM)...
We don't trade this fund a lot, but it's an important tool... It tracks large-cap and small-cap stocks that exhibit higher price momentum.
This MTUM chart is simple... You can see the 200-day moving average (200-DMA) above, in red, which helps clarify the long-term trend.
Back in August 2024, the fund briefly fell below its 200-DMA and then rallied. As of March 14, MTUM is trading below this level.
Now look at the Composite Index ("CI") at the very bottom of the MTUM chart... It's starting to move higher as price is trending lower. This is a warning sign.
The relative strength index ("RSI"), right above the CI, reached extreme oversold levels while the CI is sloping up. This is warning of weakening selling pressure.
And that's something I'll be buying soon.
Now let's move on to the Vanguard Total Stock Market Index Fund (VTI), which tracks U.S. stocks...
Similar to MTUM, VTI traded below its 200-DMA. And it's showing similar divergence between the CI and RSI as well.
The CI is also starting to slope up as price moves lower. So, again, we're very close to a bottom. (Note: The Vanguard Total World Stock Index Fund (VT), which tracks global stocks, is making a higher low relative to VTI.)
Now let's review some assets we'll actually trade, starting with the VanEck Semiconductor Fund (SMH)...
SMH is also trading below its 200-DMA. And as we saw in MTUM and VTI, the CI in SMH is beginning to slope up while price is falling.
We're always on the lookout for a stock to make a low, rally, and then drop again. If that happens it would present an ideal buying opportunity.
Leading chipmaker Nvidia (NVDA) is the largest holding in SMH, and it's currently trading below its 200-DMA. Combining this setup with SMH tells us that a low could be in the making.
Advanced Micro Devices (AMD) is another semiconductor stock worth looking at. Longtime Ten Stock Trader subscribers know I haven't traded it in a while...
AMD topped out one year ago, in March 2024. And now, as other stocks are making lower lows, AMD is holding steady, above $93.67. (I've marked that with the red horizontal line above.)
If we see a spike lower in this stock (keeping in mind AMD's October 2023 swing low), that could create some panic.
The CI is already moving up while price is coming down... even with the RSI at oversold levels. Altogether, this is setting up a low... and another buying opportunity.
I'm also looking to trade construction-equipment leader Caterpillar (CAT), which I outlined last week...
CAT bottomed out on March 4, rallied while everything else was dropping, and then made a higher low relative to the major indexes. This tells me that the low in CAT is already complete (or very close to being complete).
If CAT makes a higher low relative to other stocks – like the Industrial Select Sector SPDR Fund (XLI), which I highlighted last week – we're going to buy CAT options.
All these technical charts show us how to pinpoint lows across different sectors. Together, the price action, CI, and RSI provide more clues on what to trade next.
For now, our game plan remains the same... We're looking to buy weakness. And I'm giving us plenty of time to do that with generous expiration dates.
Best,
Greg Diamond, CMT
Editor's note: The up-and-down price action we've experienced recently has many investors unsure about what's coming next... but Greg says it's setting up a major opportunity.
In fact, he believes you could double your money if you start preparing now. So he just went on camera to reveal how to use this volatility to your advantage. Click here to get the full details...