What a week - the markets sold off violently as the full scale of the inflation we've talked about threw a bucket of cold water on the speculative party that's been raging for months now.
Stocks managed to catch a bid on Thursday, but the gains were definitely not evenly spread around; the NASDAQ stayed more or less flat as the other indexes bounced nicely.
But that's the new normal; a permanent state of volatility, courtesy of millions of new retail traders.
Just to make it more interesting, there's a kind of "buyer's strike" going on. See, the market only rallies higher when buyers crowd out the sellers, but off and on for the past few weeks, buyers have periodically fled to the sidelines. Sometimes they don't even buy dips!
This spells trouble for the short-term trend. It spells trouble for tech, too, particularly the FAANGs.
But from where I'm standing, the picture is looking good. I've got to show you this chart - I see a technical situation unfolding here that's likely to send one small stock rocketing 50% or more...
Retail Is the New Tech Right Now
This is why, like I always say, it pays to look at technicals before fundamentals.
I've noticed a severe lack of volume on major exchange-traded funds (ETFs), and their largest component companies have begun dropping yet again, a very strong signal that that buyer's strike I mentioned is continuing through May.
Unfortunately, things are turning more and more dire, since the only volume we're seeing is on select selling surges.
Adding to the pressure, we're entering a more tepid part of the earnings season as the "headliner" companies are now finished dazzling Wall Street.
But this is turning the spotlight on what I expect will be the biggest opportunity of the earnings season - maybe not as big as the profit potential in these 31 "must-own" stocks... but a mighty big opportunity, nonetheless.
See, small-cap and retail companies will start to own the after-hours news cycle as the earnings focus shifts to this group.
The retail stocks have taken a break this week as some of the leaders like Gap Inc. (NYSE: GPS), American Eagle Outfitters Inc. (NYSE: AEO), Abercrombie & Fitch Co. (NYSE: ANF), Boot Barn Holdings Inc. (NYSE: BOOT), and others had some profit-taking over the last few days before buyers came poking around on Thursday.
Taking profits is allowed in this market... trend reversals, not so much. The retail stocks continue to hold their trends, which is something that I expect to continue.
In addition, the retail sector is among the "late reporting" stocks during earnings season. This means that we're going to see earnings reports on the calendar for these companies soon, which also means that the "buy the rumor" traders will start buying again.
Here's where you want to be when that starts...
Buy This $4 Retail Superstar
The fashion clothing company Chico's FAS Inc. (NYSE: CHS) is a bit of a blast from the past for me; CHS was one of my favorite stocks to trade at one point, but it's had a rough go of it for the past five years or so.
This year, well, it's a different story.
Year to date, CHS shares are up more than 135% (one hundred thirty-five percent: that's not a typo) as the reopening trade is now including companies and retailers that have a hand in people returning to the office, which will bolster demand for business casual attire.
That's right - this is the "anti-sweatpants trade," and I think it's going to tack another 50% to the share price.
CHS's shares are building another "silver cross" pattern as the 20-day moving average is crossing back above the 50-day, but there's more to this trade. Chico's stock has gone "quiet" over the last month as we've seen the stock consolidate in a range. The drop in volatility is suggesting to me that we're going to see an aggressive move in the share price.
The trend in the stock is flashing signals that the volatility move is more likely to be to the upside as earnings approaches in early June. Buy this stock in the neighborhood of $4 - you won't be sorry. Sell it when it gets to $6 or hang in there and watch it shoot past $8.
Chico's isn't exactly the obvious choice for a monster profit play, but the charts don't lie.
A lot of the market's best potential profit plays are like that - "under the radar," you could say. My friend, Shah Gilani, has a huge list of 31 stocks to buy, including a lot of names I'm willing to bet you haven't heard of; he's running down the entire list over here. He's also naming 19 stocks he thinks are terrible. Unlike his "buy" list, some of these names are very popular. You can watch him name names right 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 Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.