The Market is Primed for a Selloff
An old adage and a popular indicator could spell trouble next month – but the profitable trades will still be there.
When looking for profitable trading strategies, many traders like to look at cyclical patterns.
One of the most popular patterns revolves around the best months of the year in which to trade. And according to this market theory, the worst time to trade is nearly upon us.
There’s an old saying goes, “sell in May and go away.”
That’s because, historically, the months of the year with the highest returns are typically October through April.
While not everyone believes in using this pattern to dictate their trading strategy, there’s another, more technical reason why I believe many stocks are primed for a sell-off.
And you need to be aware of it and prepare accordingly.
Where’s the money?
As I told members of the 1450 Club last week, when determining whether the market is overbought, the Relative Strength Index (RSI) is my preferred tool for doing so.
RSI is a measurement of the magnitude of recent price changes to evaluate overbought or oversold conditions.
And right now, the RSI is above 70 for the first time since August. That tells me that the market is currently overbought. If it reaches 80, look out below.
The inflated RSI number, combined with the tendency of traders to take a lot of money out of the market could mean a correction as April comes to an end.
The clearest sign that I look for to tell me the market is selling off is a down Friday and then a down Monday. We have not seen one this year, but when that happens, that means there is more downside on the way.
I’m not saying the sky is falling, but we are likely to see a significant drop.
So, what’s the best way to profit if and when that happens?
My answer is simple…
How do I get some?
A lot of folks heard the word selloff and immediately start buying puts in anticipation.
For me, consistently profiting from buying puts is too difficult in today’s market. Just look at the market over the last ten years. Unless you timed buying puts extremely well, you likely have had a hard time making money with put options.
Despite the hardships that the economy has faced, the market continues to grind higher.
And even though we’re likely to see many stocks move lower in the coming month, there will be some incredible profit opportunities to the upside as a result.
And I know just how to find them…
Find Profits in Both Bull and Bear Markets
In a bearish market, traders need to be even more selective than in a bull market.
A rising tide lifts all boats, but that’s not necessarily the case when the market falls and investors become more anxious.
The best way to find profitable trades, in my opinion, is to follow where the big money is flowing.
I do not care about what we hear on TV or read in an article online. All I care about is what the smart money and buyers are doing. This is why the S.C.A.N. system works so well because it filters out all the noise and only focuses on where money is going.
And in the 1450 Club, the S.C.A.N. system helps me to identify the stocks to which the largest flows of money in the market are going.
Click here to find out how you can find trades with money-doubling potential no matter which way the market is heading.
In the Spotlight:
Coinbase Global, Inc. shares opened up above $380 yesterday – up from the initial $250 valuation – as investors piled into the first publicly traded cryptocurrency exchange.
Optimism for the cryptocurrency market has never been higher, and traders are eager to take part in the action.
I’ve already said that I’m staying out of the COIN IPO. We’ve seen too many IPOs in recent years skyrocket, only to fall back to Earth shortly after.
That said, I do love the cryptocurrency space and I will be keeping an eye on this stock in the future for any buying opportunities. Keep an eye out for Profit Pregame issues for my thoughts and tips on the best cryptocurrency plays.