After a weak March performance, stocks are roaring back.
The S&P 500 rallied above the 4,100 level for the first time ever and has made itself comfortable there. The Dow blew past the 33,500 level, another all-time high. And the NASDAQ is at 13,800 at midday Friday, roaring back to its all-time highs.
But then, if you've been with me for a while, this isn't necessarily a surprise; I've been saying strong momentum and strong April seasonality will keep markets moving higher. December and its "Santa Claus rally" phenomenon are the market's strongest months, but April is a close second – really close.
But even in a huge, crowded field of bullish performers, there's one exchange-traded fund that really stands out; with the markets like this, that's really saying something.
Buying this ETF outright means double-digit profits, but the folks who know how to trade options will probably double their money here if they move this week.
Here's the ticker…
Investors Are Getting over Interest Rate Fears
The prospect, rather than the fact, of rising interest rates had been stirring up the markets recently, catching the complacent off guard.
But that turned out to be kind of a paper tiger – it was the fear of interest rates and not the impact that was causing the trouble. So it didn't take long for the market to wake up to reality and say, "Hey, rising rates means the economy is starting to roll again – that's good news!"
That's why on my screens, I'm noticing that a lot of cash is migrating between sectors. This is happening because traders are focusing on sectors that are starting to outperform the market, and this opens opportunities for traders like us to cash in.
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What can I say? When money moves, opportunity abounds. My colleague, Tom Gentile, has been tracking money and volume flows coming from the young new retail traders out there (you know, the folks who helped give us GameStop?). On April 15 at 1 p.m., he's going to reveal the "road map" for folks looking to profit from this phenomenon. Keep your eyes on your inbox; you'll hear from him.
Me? I've been tracking cash migration, technical strength, short interest, and other variables with my proprietary system – meaning you can't get these findings anywhere else.
Here's the Profit Play of the Week
All my data points to one single ETF that you'll want to jump on right away – the SPDR S&P Retail ETF (NYSEArca: XRT).
Retail is simply the strongest sector – and the smartest buy – right now. Here's why you should be long on this ETF.
As of Tuesday's close, 85% of the companies that make up the XRT were trading above their respective 50-day moving averages. That's about as bullish as it gets. To put that in perspective, only 67% of the NASDAQ 100 companies can make that same claim.
Additionally, 64% of the XRT's basket of companies have 50-day moving averages that are trending higher. This is one of the strongest breadth readings for all the ETFs my "best in breed" system tracks.
Looking at relative strength, XRT shares are outpacing the S&P 500 by 20% over the last three months; just nine of the component companies are weaker than the S&P 500.
No two ways about it: These stats make the XRT shares one of the strongest in the current market.
It gets even better – here's where the "explosive profits" part comes in…
My proprietary "constituent weighted short interest" data indicates that XRT shares show signs of a short squeeze rally that could bring additional upward pressure. This is happening as the shares prepare to challenge their 52-week highs around $95.
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Looking at the (beautiful) technical data for XRT, I expect a break above $95 is going to cause a powerful combination of short covering and price chasing as traders will continue to move money from underperforming sectors and ETFs into this shining star.
There's just not much there in terms of technical resistance, and the economy is about to get a heaping helping of consumer discretionary spending.
In other words, you must – repeat, must – own this stock this week, before it gets to $95. I don't think there's much time left.
Buy-and-hold investors should be holding the stock with a price target of $115. That's better than 26% upside from today's levels.
There's a high-profit "kicker," too. Folks who know how to trade options might consider XRT Sept. 17, 2021 $100 calls.
Those options traders out there might consider the XRT Sept. 19, 2021 $100 calls for a purchase price of $3.50 or less. As of midday Friday, these were trading for around $3.05, so, again, not much time. A move above $115 would then yield triple-digit profits.
That's the kind of profit potential options trading can have. I know one "options on steroids" trading strategy just gave one group of readers the chance to double their money in just six trading days. You can check out how to get the next "super options" recommendation here.
About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Straight-Up Profits. He also contributes to Money Morning as the Quant Analysis Specialist.