Short-Term Trades & Risk Appetite Gauges

Interest Rates continue to stabilize in the US and globally, setting the stage for rotation into several beaten-down areas of the Equity market...particularly in small banks.

This was a risk to our near-term bearish thesis and suggests the major indexes could push marginally higher in the very short-term. And while we ultimately believe further weakness is ahead over the intermediate-term, we have to acknowledge and monitor this rotation under the surface to see how it develops.

Several stocks we're watching could benefit from this "dash for trash" trading environment taking place in the market. Not only are they attractive reward/risk opportunities on their own, but more importantly, how they perform will provide important information about risk appetite and the potential for the market to extend further to the upside. It's the same reason we were monitoring Autos and Media earlier in the month.

The idea is that if market participants are buying these very beaten-up stocks, then the world is probably not coming to an end. At least not yet.

So let's outline the stocks we're watching.

Here's RBL Bank Ltd., which is confirming the same type of failed breakdown and bullish momentum divergence reversal setup we successfully identified in Page Industries last week.

As long as prices are above 110, then this thesis remains intact and we want to be long for some mean reversion towards 210.

Click on chart to enlarge view. 

Endurance Technologies has a constructive look here after basing for nearly 3 weeks. As long as prices are above 585 then there's potential for mean reversion towards 810.

If these types of stocks are working their way to the upside in the near-term, then the market is likely flat to higher in that environment. If however, they do roll over, then it's likely that our bearish thesis we've been outlining over the last several weeks is taking hold and much lower stock prices are ahead.