Trade Alert: Buy the UltraPro Russell 2000 ETF (URTY)
The Russell 2000 doesn't play by the rules. So, it's a good way to distance ourselves from the seasonal chop in other markets right now - and it looks ready for a strong bounce.
Trade Alert: Buy the UltraPro Russell 2000 ETF (URTY)
The Russell 2000 small-caps don't play by the rules — and are looking scrumptious.
Take a look at the difference between how the Russell 2000 traded leading up to the big 2022 bear market versus the other indices…
The Russell 2000 is at the top — you can see how it was chopping around in this flat box area while all three of the other indices went higher:
And right now, it's doing something similar…
Below you can see that while the other three indices (bottom) have moved up since about June 2022 — the Russell 2000 has formed another choppy box type of range:
The Russell really doesn't seem to play by the rules. This makes it a nice trade idea to distance ourselves from the seasonal chop from the other markets right now while we wait to see how things shake out.
Now — what's important to understand about these "range plays" is that the range can break at any time. So, keep that in mind. But that's also an EASY way to decide if the trade is invalidated.
All in all, though — price action points to a bounce. Let me walk you through it really quick.
Zooming in here on the Russell, you can see how — although it's in a range — it's gradually inching higher, with each new low being a higher low than the last:
And right now, we're trading at the bottom of that range.
In this next chart, you can see how the momentum indicators are all oversold and moving up. The Moving Average Convergence/Divergence (MACD) histogram shows that selling pressure is decreasing while buying pressure is increasing.
The Relative Strength Index (RSI) is also moving up from an oversold state.
And the Z-score is moving up from a two standard deviation move. (I look for +2 or -2 standard deviations as overbought or oversold on Z-score.)
Also, as you see below with this three-year chart of the iShares Russell 2000 ETF (IWM), we're at a very high volume node (red and green bars), which could act as major support for the price, causing another strong bounce:
So, my two horizontal black rectangles are highlighting the two largest volume nodes. You can see that the price is trading right within those nodes.
The vertical rectangle highlights that the price is currently trading in a Peak area (orange shading) according to the Trade Cycles algorithm.
Normally I'd be looking to buy an asset if it were in a Valley (blue shading) or approaching a Peak. (So, heading out of a Valley and moving up to a Peak).
And typically, I look to sell assets that are in a Peak.
But an asset within a Peak also means it can pop up in that time window, and until it exits that Peak, it's still a valid trade.
Especially if the price action lines up with that idea…which, in this case, it definitely does.
For example, if the Russell 2000 was at the TOP of that range, the momentum indicators were overbought, and it was also trading in a Peak, I wouldn't touch it.
But in this case — everything is in "coiled spring" territory. It's at the BOTTOM of its range. It's oversold on all the momentum indicators. It's in a peak — but it hasn't popped (yet).
That story is different. It tells me that the Russell is primed to have a big move up and, in fact, is overdue for one.
Right now, the Peak area ends on October 12.
And wouldn't you know it… that's about the same time that the Russell 2000 tops out on a seasonal basis specifically on pre-election years.
From Sept. 20 — Oct. 12 on pre-election years, the Russell 2000 tends to move up an average of 4.2%.
Chart: Cumulative result of investing $100 in the Russell 2000 during Sept. 20 — Oct. 12 of the last five pre-election cycles
So, to recap, everything is on our side for a solid long:
Trading at the bottom of a long-term range (with a gradual uptrend)
Momentum indicators oversold and moving up
Price is at a high-volume node that could act as support
In a favorable bullish seasonal period
I think this could be a really great trade.
How to Trade the Russell 2000
Rather than do our usual "two ways to trade" this — a call option or buy the outright index — I think it would be easier and more straightforward to just buy a leveraged version of IWM. So, if the IWM/Russell 2000 moves up 5% (according to the price target I'm eyeing), then the SAME situation would give us a much larger profit.
Let's go with the ProShares UltraPro Russell2000 ETF (URTY), which is a 3x leveraged ETF.
Go ahead and buy the URTY at market any time today: Friday, Sept. 29.
I'm looking for IWM to move up to the TOP of its range. This index can be a little "sticky" until it's not.
The last few times it was at the bottom of its range, it took 60 days, 50 days, 40 days, and 120 days to move back up to the top of its range.
I actually played the last bounce for a fantastic 100%+ return, so the fact that it's back down in this area again looks like a tasty snack.
And the idea is to get into this without worrying about time decay on an option — so we can just sit on it until it gets back to the top of that range.
This trade will be invalidated if we start moving BELOW that range and it begins steadily trending down.
So, expect that this is going to be a little bit more of a patient hold. URTY could take anywhere from 30 days to 120 days to work out. (But hey — maybe it rockets up real fast. That'd just be a bonus.)
That's all for now. Keep an eye out for my next trade alert, and I'll see you next week.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
Tidak ada komentar:
Posting Komentar