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Three Bearish Trends for May
04/21/2016 9:00 am EST
Seasonal trading expert Jeffrey Hirsch, editor of Stock Trader’s Almanac, notes that three sectors begin seasonally weak periods in May: banking, gold & silver stocks and materials.
Over the past 15 years, all three of these sectors have declined on average 6.6% to 7.6% which sets them up as good short trade candidates during the spring and early summer months.
Typically, we like to take advantage of sector weakness through the use of inverse or bearish sectors. By doing so, the trade is similar to any other long trade that we choose to execute.
One of the drawbacks of inverse ETFs is they frequently employ leverage and only track the daily performance of the underlying benchmark.
As holding periods get longer, these types of funds often exhibit performance that differs significantly from the underlying security or index’s performance due to compounding and tracking errors.
SPDR Financial (XLF) could be shorted under $22.00 as it has fallen below its monthly pivot and its technical indicators are all negative.
Should XLF bounce back above $22.00, it could be shorted at $23.15, monthly resistance. Set an initial stop loss at $24.05 and take profits at $18.30.
Rising interest rates and a steepening yield curve were expected to lift banks’ profits, but the Fed appears to be on hold and the yield curve is flattening.
Direxion Daily Jr Gold Miners Bear 3X (JDST) can be bought on dips below $4.45.
JDST is volatile due to its 3x leverage and frequently trades in a wide daily range. If purchased set an initial stop loss at $4.15. Consider taking profits on any jump above $6.17.
SPDR Materials (XLB) could be shorted on a rally back toward resistance near $46.36 or on a break down through its 200-day moving average currently at $43.67.
XLB had enjoyed a solid rally from late January till roughly now, it’s Stochastic, MACD and relative strength indicators have all turned negative though. A stop loss at $47.05 is suggested and profits can be taken at $36.47.
Meet Jeffrey Hirsch at the upcoming MoneyShow in Las Vegas, May 9th–12th. The seasonal trading expert will discuss the election cycle and strategizes to “election-proof” your portfolio. Register here.
By Jeffrey Hirsch, Editor of Stock Trader’s Almanac
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