Trade of the Day: HACK Cyber Security ETF Is a Short

A technically text book setup in this ETF is ripe for traders to jump on

Technology stocks as a sector of U.S. stocks display relative strength versus the broader market year-to-date, despite relative weakness on the recent bounce. Within technology stocks there is a group of cyber security stocks as represented by the ETFMG Prime Cyber Security ETF (NYSEARCA:HACK). Despite a likely promising future, they look susceptible to another pullback in.

hack etf
Source: Shutterstock

As I point out to our clients on a daily basis, in these volatile markets, it is existentially important to clearly determine ones intended time frame on any given trade or investment. More specifically, don’t let a multi-day trade turn into an investment, or vice versa.

Sticking to this rule can not only avoid an overdrawn account that may take years to recover, but it also keeps you in a steadier state of mind open to all opportunities.

Also, as market volatility has picked up in a major way over the past few weeks, it has led to an extreme positive correlation among risk assets, particularly in stocks. Put another way, this speaks for a focus on liquid (and preferably non-leveraged) ETFs. Why take on additional idiosyncratic single stock risk when the market is so highly correlated anyway?

HACK ETF Stock Charts

hack etf
Source: TradingView

On the longer-term weekly chart, we see that the HACK ETF snapped its multi-year up-trend a few weeks ago. While the ETF saw a significant rally over the past week and a half, along with the broader market, it has now arrived at a textbook potential technical resistance area.

A simple yet useful principle in technical analysis is that previous support can turn into resistance, at least for a period of time. As such, we note that the rebound of late has pushed HACK back to the underbelly of the previous blue support line. Through this lens at least some backing and filling or somewhat lower prices are likely.

hack etf
Source: TradingView

On the daily chart we see all of this a little more close up. The $36 – $37 area offered support in October 2019 and it is almost to the penny where HACK found resistance on March 31. On that day the ETF also left behind a so-called buyer exhaustion candle, which led to follow-through selling on April 1.

From here, while the ETF does not have to plummet lower in a straight line, it is likely that a re-visit in the low $30s will occur in coming weeks. Traders can set a very well defined stop loss at $37. Any break and hold above there on a daily closing basis is a clear stop loss signal.

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