Technical Strategy Video:

Three Technical Counter-trend long ideas that look attractive heading into 2022

Key Takeaways

  • Thursday reversal of early morning strength keeps the near-term consolidation in place, for now.   Market technicals had given some advance warning of a stalling out vs an immediate burst back to new highs, and this continues to play out. 
  • NASDAQ in particular was hard hit, but mostly large-cap “FAANG” bore the brunt of the selling, while equal-weighted Tech fared much better
  • Cannabis & Chinese Equities along with Precious metals have persisted in their weakness.  These were all thought to be attractive counter-trend ideas starting in December.  All are intermediate-term attractive heading into 2022 for longs, technically

S&P and NASDAQ reversed early Futures gains sharply as NASDAQ took the lead in turning down, led mainly by large-cap Technology and Discretionary.   Markets are continuing to show strong relative strength in many of the Defensive issues, which have outperformed Technology in recent weeks.   As has been discussed in recent notes, Wave structure could still allow for a “final” leg down into late next week before a rally. 

Three Technical Counter-trend long ideas that look attractive heading into 2022
Source: Trading View

Technical Developments  

Neither S&P nor NASDAQ has managed to push back to new highs, and the call for a “stallout” has proceeded as planned, which has been discussed ad-nauseum in these Technical reports.  Until more broad-based evidence of Index strength arises, it’s tough to fight near-term trends

Defensive groups like Consumer Staples, Healthcare, REITS, and Healthcare continue to show very good relative strength

Technology has begun to weaken relatively, and this looks likely to persist into January before this can bottom out.  Importantly, this group remains in good technical shape, but had merely gotten ahead of itself.

Sentiment has gotten skittish again, and is thought to be a driving factor why markets likely will start to turn up during the final week of the year for a Santa Claus rally

Technology-  Near-term Weakness Possible, but should create attractive buying opportunities into early 2022.  

XLK below vs SPX in ratio charts made an excellent breakout vs SPX relatively speaking.  However, we’ve seen evidence of this weakening in the last week, and momentum gave some advance warning that this could happen in early December with a series of lower highs per RSI while this ratio chart attempted to push higher.  Overall, this should be attractive to buy dips given the lengthy long-term breakout which is now seeing some “backing and filling” taking place, which should find firm support near the “neckline” of this former breakout.  Technology will remain an area of focus for 2022, but just requires consolidation, in my view.

Three Technical Counter-trend long ideas that look attractive heading into 2022
Source:  Optuma

3 Counter-trend Intermediate-term Long Ideas-  1) Cannabis stocks, 2) Chinese Technology stocks, along with 3) Precious Metals.   Let’s delve further into a few ideas discussed in last month’s notes and these have become more actionable as intermediate-term long trades heading into 2022.   It should be stressed, that these are all very technically weak from a trend perspective.  Thus, these aren’t the typical tactical short-term trading longs.  These should be thought of as intermediate-term in nature, and weighting in small size might make sense with Stops (for those who utilize trading stops) until they can begin to strengthen. 

First, China.   I’ll specifically cover my favorite technical way to play China, which involves Chinese Technology.  The KS-Trust CSI China Internet ETF (KWEB- $41.48 (12/14/21)) allows one to gain diversified exposure to many of the largest Technology names in China like  BABA 1.12% ,  TCEHY,  BIDU 0.28% , and others. This is down around 61% from where it peaked 10 months ago in mid-February, and hovering just above very important support from lows made from ’18-’20,  Technically I am expecting further weakness into late December, as near-term wave structure from October 2021 highs seems to suggest a final pullback to complete a five wave decline. The reasons for optimism are as follows:  1) Structure (Nearing multi-year Support )  2) Momentum divergence (weekly RSI bottomed in August and has diverged higher, despite price moving lower 3) Bearish sentiment (Many investors are unwilling to have conviction in Chinese Equities following XI’s pressure on many Chinese companies 4) Counter-trend Exhaustion-  Per DeMark indicators, this could line up in showing TD Sequential and TD Combo  in 6-8 weeks. 

Three Technical Counter-trend long ideas that look attractive heading into 2022
Source:  Symbolik by DeMark

Overall, KWEB still looks early to buy tactically here, but I expect this will be an attractive risk/reward on further weakness down to 35-37 into early 2022.  For those who invested initially in October/November, it will be proper to buy dips into early 2022 on further weakness.

Precious Metals- Can they ever bottom out?   Trading lows look close

Most Precious metals look close to hitting support which should aid this group at a time when many have given up on Metals in favor of Cryptocurrencies.    In general, precious metals have been late to the game in rallying like many commodities, and this might prove still early in 2022 if the Dollar’s rise continues.   Moreover, Gold peaked right as the US 10-Year Treasury yield bottomed out initially in August 2020 but has been a difficult investment over the last 16 months.  Charts below on Silver have traded quite symmetrically and should present some opportunity on a bit more weakness into 20.50-20.75 in the weeks to come.  At present, US Treasury yields look to be bouncing along with the US Dollar moving higher.  This “One-Two” punch makes it difficult to consider Metals.  However, technically as prices near support, for Silver near 20.50 and for Gold, near 1720, might provide a better entry point.   Overall, I expect the US Dollar to gradually begin rolling over next year, and this along with a volatile Equity market might finally provide some opportunity for the Metals.    IAU and GLD are the best ETF’s for Gold, while GDX allows for exposure to the Gold Miners.  Meanwhile, SLV is preferred for Silver.

Three Technical Counter-trend long ideas that look attractive heading into 2022
Source:  Trading View

Time for POT stocks to finally “Get HIGH?”  Finally, it’s worth taking a close look at the Cannabis sector, given this trade largely “went up in Smoke” in 2021.   When eyeing weekly charts of MJ, the ETFMG Alternative Harvest ETF, we see MJ has dropped more than 50% since peaking in mid-February more than 10 months ago.  However, three technical reasons stand out as to why it might be time to buy dips.  

First, Prices are now nearing two prominent lows that have been made since early 2020.  For MJ, this lies near $9-$10 (the absolute low tick happened at $8.81 back at Equity market lows in March 2020)  After closing at $33.31 back on 2/10/21, this closed 12/15/21 at $11.30, just above this key level. 

Second, momentum has gotten oversold on weekly charts and has begun to show some positive momentum divergence. 

Third, weekly exhaustion indicators by DeMark look to be on the verge of completing their first 09-13-9 pattern from the February peaks.  This could come about in the next 3-4 weeks (into early January) and would have support down at 10.50)

Bottom line, this is looking increasingly like an excellent risk/reward to buy dips technically and one could take a stab at buying this between $9-$10 (If/when US Legalization happens in the next 1-2 years (which I won’t comment on) this would be a natural fundamental catalyst in all likelihood to expect some serious mean reversion higher.

Three Technical Counter-trend long ideas that look attractive heading into 2022
Source: Trading View

Bottom line, all three of these ideas look interesting to consider as longs heading into 2022.   However, all three remain in downtrends and have plummeted in recent weeks, making patience and a high tolerance to risk a necessity.  Thus, expecting a meaningful low that reverses and carries materially higher will take time.  Initially, stabilization is necessary and important, and these are all thought of as risky, counter-trend ideas which have an intermediate-term time frame to materialize.   However, enough is in place now technically to suggest at least a meaningful trading low into 2022, and potentially if my thesis materializes, these could start to turn higher in 2022.  As to how to properly size ideas of this sort, technically it looks best to start with small size and look to add on minor weakness, but also to consider pressing longs once these show more technical strength.  I’ll revisit these in a few months’ time.

Disclosures (show)

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