Thursday started innocently enough with the indices hovering near breakeven, but things turned ugly right around midday. The two biggest catalysts for the move lower appeared to be the rising rate on 10-year treasury notes and comments from Fed Chairman Powell. Powell stated that the Fed would not act to curb inflation just yet as the U.S. economy was a long way from reaching full employment.
The indices all turned sharply lower just after noon and all four would finish with significant losses. The Russell experienced the biggest drop at 2.81% and the Nasdaq fell 2.11%. The S&P lost 1.34% and the Dow slipped 1.11%.
Nine of the 10 main sectors declined on the day with only the energy sector gaining ground. The sector rallied 2.37% as oil prices jumped again as OPEC agreed to hold production levels.
The same two sectors that led the losses on Wednesday led the losses on Thursday. The tech sector dropped 2.26% and the consumer discretionary sector tumbled 2.12%.
My scans turned more neutral last night, but remained slightly skewed to the bullish side. There were 17 bullish signals and 13 bearish signals.
The barometer dropped once these results were added in to the calculation, falling to 39.9 from 56.1.
It’s hard to make bullish recommendations after seeing some serious selling in the last few days, but that is where I found the best trade setup last night. The iShares U.S. Real Estate ETF (NYSE: IYR) appeared on the bullish list and there is a pattern on the chart that I like. We don’t have the traditional fundamental ratings because it is an ETF, but the artificial intelligence platform that I use (Tickeron) generated a bullish signal on the IYR and it shows a 90% confidence level of the fund moving higher over the next month.
We see how the IYR has been moving higher since late October and a loose trend channel defines the highs and lows within the overall upward trend. The fund is near the lower rail and it is extremely oversold at this time. The last time we saw both the RSI and the stochastic indicators in oversold territory was in late October, just before a huge rally.
Buy to open the April 83-strike calls on IYR at $4.05 or better. These options expire on April 16, 2021. I suggest a target gain of 75% and that means the fund will need to reach $90.10. The fund hit $90.84 in February, so it won’t have to break to a new high to hit our target. I recommend a stop at $83.25.
— Rick Pendergraft
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