- JC Parets is a leading market technician and founder of AllStarCharts.com.
- He is watching the market for a rotation and monitoring 3 important signals for crypto and stocks.
- Parets lays out 5 trades that could buck the bearish sentiment still gripping most investors.
At the start of this year, most investors thought the rally in energy could be overdone after returning 53% in 2021 relative to the S&P 500’s 27% return.
JC Parets, however, made a contrarian bet on the further strength of the sector.
As a leading market technician and founder of AllStarCharts.com, Parets leverages charts to find patterns and trends that signal market opportunities.
“When it comes to what’s my favorite technical indicator,” Parets said in a previous interview with Insider. “That’s an easy answer: price.”
In February, he made a call that investors should continue buying energy stocks and oil if crude oil remains above $84. Since then the energy select sector index returned 35% while Brent crude oil surged to around $120 a barrel, a 42% increase from the level Parets recommended to buy at.
“We’re looking for rotation into some of the beaten down areas as evidence that the market is getting going but that doesn’t change the fact that the relative strength remains in energy,” Parets said. “Energy was the best performing sector in 2021 … It’s the best performing sector in the month of May, the relative strength is still there.”
However, the same can’t be said for the broader market where risk assets, such as cryptocurrencies and stocks, have taken a beating. The S&P 500 briefly flirted with bear market territory when the index dropped 20% from its January peak before quickly recouping some losses.
To date, the S&P 500 is down 13% while the NASDAQ is down by 22%.
“Anybody who thinks this is not a
bear market
is fooling themselves,” Parets said.
“Definitely in crypto, we’ve been in a bear market for over a year,” he added. “In the stock market, we’ve been in a bear market since February of 2021, so we’ve been in a bear market longer in stocks than in bitcoin and cryptocurrencies.”
Despite the negative environment for risk assets, leveraging technical analysis Parets still sees some opportunities within energy and the broader stock market.
Bear market trades
1) Energy Select Sector fund (XLE)
Markets Insider
If XLE remains above $80, Parets recommends staying long XLE and energy.
2) Chevron (CVX)
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Parets recommends adding to positions in Chevron (CVX) as long as it remains above $170.
“Chevron was the best trade we put on this year, and has the potential to be the greatest trade ever because we have LEAPs that don’t expire until January 2024,” Parets said.
3) Bitcoin (BTC)
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“If bitcoin is not above $30,000, there’s no reason to be long,” he said. “Above $30,000, I think you can give it a shot. I think investors need to be aware that we’re seeing new 52-week highs in futures leverage … investors need to expect wider swings, it’s an increased likelihood of
volatility
.”
4) Coinbase (COIN)
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Coinbase (COIN) is a trade that Parets is interested in based on recent insider buying activity from its co-founder Fred Ersham.
“If we are above $75, we want to be long Coinbase,” Parets said. “Below $75, it’s a no touch.”
5) Binance coin (BNB)
https://www.coingecko.com/en/coins/bnb
It’s hard to find many cryptocurrencies bucking the trend, Parets said. One that’s showing some relative strength is Binance coin (BNB).
“Even then, it’s not like it’s strong or anything, it’s just not as weak as the others,” Parets said. “I think if BNB is above $340, we will own it.”
Signals to watch
To make broader bets on risk assets, such as crypto and stocks, investors need to be watching a number of signals, according to Parets.
1) Dollar weakness
“If investors plan on making any money at all, in stocks or in cryptocurrencies, we are making a very strong bet that that will only happen if the dollar is getting weaker,” Parets said.
Parets highlights previous cycles where stocks and crypto have rallied and the dollar has been weak. In both 2020 and 2016, cryptocurrencies started to outperform when the dollar peaked.
Investing.com
The dollar’s been on an incredible rally as of late, but its starting to show some weakness, Parets said. Stocks have rallied on the back of this while bitcoin is holding support, he added.
“I always try to avoid being mr macro guy and getting too macro,” Parets said. “But the data is just too strong to ignore it. It really all comes down to the United States dollar.”
2) Capitulatory behavior
Investors also want to look for capitulation in trading volumes and realized losses. This tends to happen near important bottoms, Parets said.
“We’re not seeing the types of behavior out of momentum and breadth that you see in downtrends, you’re seeing the type of behavior that tends to come at key turning points,” Parets said.
A similar behavior is occurring in crypto with the capitulatory selling of realized losses and volume spikes in derivatives markets, Parets said.
3) Buying activity in Asia
Asia is historically considered the smart money, Parets said.
“The Asians are stepping up and they’re making their moves [in crypto], which historically come in the early stages of a strong
bull market
for bitcoin,” he added. “And they’re stepping up as we speak in a similar way to what they were doing last summer before bitcoin doubled.”