Posted October 19, 2020
By Scott Stewart
How to Spot an Upcoming Selloff
Welcome to todays Rude Awakening
Once again, were seeing a strong open today.
Its Always Something
The S&P 500 and the NASDAQ are pushing higher based on potential expectations of a stimulus bill passing.
Even though we havent had any more substantive news that more stimulus will get through Congress, that notion is whats driving markets right now.
Its always something moving markets, whether up or down.
And right now, its 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
Were looking at an interesting stock, here. One thats had the ability to run since its lows at the start of the pandemic.
But, it still shows signs of a potential pullback.
Were talking about Guidewire Software, Inc. (NYSE: GWRE).
This ones moved from its pandemic lows in the $70 range, up to as high as $122.
But lately, using some of our trading tools, were 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, GWREs 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.
Thats 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.
Its 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, thats it for today!
Have a great rest of your trading day, folks.
Well talk again tomorrow
Scott StewartEditor, Rude Awakening