All the major indexes made new lows last week, confirming that sellers are still in control.
Another bad inflation report caused stocks to gap down big Thursday morning. And while they actually rallied the rest of the day, they gave up all those gains on Friday.
Eventually, the low will be made and a new multi-year bull market will begin.
But until we see that, there is simply no reason to throw good money after bad and try to buy stocks in this environment.
Don’t Catch a Falling Knife
Do not attempt to buy the low. No one does it successfully, and most lose a lot of money trying.
If you miss the first 10% of the rally, so be it.
The market will likely run 100% or more in the next bull market, and many stocks will advance by several hundred percent.
You your goal should be to have as much capital as possible when that day comes.
And the only way to do that is to be defensive when conditions are this poor.
But if you are an active trader like myself, here are a few setups I am currently watching…
Northrop Grumman (Short Idea)
I have been watching NOC for a long trade for the last several weeks. In fact, I even added it to the Watchlist back in September.
But thanks to a vicious bear market, the stock failed at its highs and is now rolling over.
Failed breakout trades can be lucrative short opportunities, and you might consider a short trade on NOC if it breaks last week’s low and trades below $464.
Foot Locker (Short Idea)
The significance of the 200-day moving average cannot be overstated.
Strong stocks hold above it and tend to find support at the 200-day. Once broken, this same level generally becomes resistance and holds price below it.
FL is pushing up against not only its 200-day moving average, but the 21-day and 50-day as well.
Together, these are likely to create a resistance zone in the $32-$34 area. This is a low-risk area from which one might consider entering a short trade.
Regeneron Pharmaceuticals (Long Idea)
If you are not comfortable shorting stocks and looking for names to buy, Regeneron is one of a small handful of bullish setups.
The stock just completed a large cup with handle pattern.
The trigger to buy would be a move above $760 on above average volume.
Breakout trades are failing at a higher rate than normal given the downward pressure of the bear market, so be sure to use a tight stop if you take this trade.
Personally, I wouldn’t risk more than about 5%.
Trade Under the Radar
Institutional investors like pension funds, mutual funds, hedge funds and other large players make massive institutional buys that fly under the radar of most individual investors.
But if you know how to spot those buys in real time, you can potentially follow the big money to big gains.
This is what I focus on inside my premium Stealth Trades research service.
Look, if you haven’t been making money in these markets, it’s time to try something new…
Embrace the surge,
Editor, Stock Surge Daily