How to Spot an Upcoming Selloff
Welcome to today’s Rude Awakening…
Once again, we’re seeing a strong open today.
It’s Always Something
The S&P 500 and the NASDAQ are pushing higher based on potential expectations of a stimulus bill passing.
Even though we haven’t had any more substantive news that more stimulus will get through Congress, that notion is what’s driving markets right now.
It’s always something moving markets, whether up or down.
And right now, it’s stimulus talk.
But, no matter how high the market goes, we can always find elements of weakness.
That brings us to our focus today…
Stocks Run Up, And Stocks Fall Down
We’re looking at an interesting stock, here. One that’s had the ability to run since its lows at the start of the pandemic.
But, it still shows signs of a potential pullback.
We’re talking about Guidewire Software, Inc. (NYSE: GWRE).
This one’s moved from its pandemic lows in the $70 range, up to as high as $122.
But lately, using some of our trading tools, we’re seeing some very interesting technical analysis playing out.
We are seeing a few things that look to guide this stock lower…
First off, we can see a clear double top.
The same indicator we recently discussed, GWRE’s chart shows us a double top. This is a bearish indicator. And, its more recent highs have hit lower each time, all of which have hit within the last few months.
That’s the definition of a trend.
We are seeing lower highs and lower lows on GWRE.
When you see swing lows like this, you know the stock is trending down.
Secondly, we can see a breakdown below the 50day MA on GWRE.
We also have the MACD and histograms crossing over, getting ready to break to the downside.
Most importantly, our Chaikin money flow indicator (CMF) is showing negative outflows of cash on this stock for some time.
The CMF is a technical indicator that measures the money flow volume during a specific period. The CMF indicator can be used to determine whether there is a buyer’s pressure or a seller’s pressure on the market.
All this analysis tells us, GWRE is headed for another swing down.
In the Rude Awakening Pro, we set up a high POP, bearish trade on Guidewire Software, Inc. (NYSE: GWRE), for implied returns of 17% in just one month, or 195% annualized returns.
It’s a trade that stands to make money whether the stock falls further, middles out, or even goes up somewhat.
We did this using options.
If you want to learn more about our Pro level trades, you will be able to sign up for our Rude Awakening Pro service very soon…
But for now, that’s it for today!
Have a great rest of your trading day, folks.
We’ll talk again tomorrow…
Editor, Rude Awakening