We held a free webinar this week to show off our new ChartBook and discuss how to best invest for 2016 using intermarket analysis. At All Star Charts, we use a global top/down approach in order to take the weight-of-the-evidence in Stocks, Commodities, Currencies and Interest Rates to come up with a theme. Once we have a major global theme, we will break it down to specific U.S. Sectors or Country ETFs and either buy or short individual ETFs or stocks to express our theme using strict risk management procedures [Read more…]
In this week’s members-only letter we discuss the following topics:
- How Is The Santa Claus Rally Coming Along And What Does It Mean?
- Which Markets To Buy Dips And Which To Sell Rips
- How High Can Natural Gas Go?
- Japanese Yen and U.S. Equities
- Gold vs Copper Ratio Still Trending
- U.S. Interest Rates and the Yield Curve Narrowing
Thank you to everyone who registered for the new All Star Charts membership. I’m super excited to have you guys as part of our team. Remember, we’re all in this together trying to navigate through this market day in and day out. It’s a puzzle that is constantly evolving and what we’re here to do is look for major trends around the world and then break those down to find more intermediate-term investing opportunities based on those structural setups. The new All Star Charts was an idea we’ve been working on for a long time, so we couldn’t be happier to finally be able to share the ideas and the homework that I already do with all of our new members. Welcome to our club!
For the past 2 months I’ve been very vocal about how there’s been no reason to own the major U.S. Stock Market Averages. If there’s been any trade to be made, it’s [Read more…]
We have to trade and invest in the market that we have in front of us, not the one that we want. Therefore we have to be able to approach the market from a completely unbiased perspective. We don’t care if the market doubles in price or if it gets cut in half. We want to try to take advantage of moves in both directions. This is America after all.
I know it’s not sexy, but since October 23rd, we have wanted to approach the major U.S. stock market averages from a more neutral perspective. This is the day that both the S&P500 and the Dow Jones Industrial Average first got above what was then, and still is, a flat 200 day simple moving average. Securities in that sort of environment create headaches, for both the bulls and the bears. The reason is because [Read more…]
For the past few weeks I’ve been writing a weekly open letter to readers about what I’m seeing across the stock market, bond market, commodities and currencies. The feedback I’ve received has been unlike any other time in the 5 year history of All Star Charts. I want to thank all of you for that. I think this is something that I will have to continue to do and make it a regular part of my routine. I’ve done this sort of thing in the past while managing money in order to keep our investors up to date on how we want to approach the marketplace. The format you’re seeing here is no different. Please feel free to keep emailing me and contacting me via Stocktwits or Twitter on how it can improve and what sort of things you guys want me to talk about.
Starting with the U.S. Stock Market, this as a group continues to be in no-man’s land. When price is near a flat 200 day simple moving average, the market is suggesting that there is [Read more…]
Here we are almost half way done with the month of November and most of the major U.S. Stock Market averages have gone no where this year. The more popular indexes, S&P500 and Dow Jones Industrial Average, are both flat for 2015. The Smaller-cap indexes Russell2000, Mid-cap 400 and Russell Micro-cap indexes are all basically flat as well down less than 1-2% this year. The ones that stand out are the Nasdaq100 up 10% this year and the Dow Jones Transportation Average, down 10% in 2015. We’ll call that a wash. Markets are flat.
A couple of months back I laid out 3 possible scenarios for the S&P500 going into year end and into the first quarter. A retest of the August lows was what I figured would be the highest probability outcome. From there, it became more difficult to judge: we either keep retesting those lows and ultimately break, or consolidate and eventually break out to new all-time highs. This is still in question. So as usual, we want to take the weight-of-the-evidence to come up with a game plan.
First of all, as strong as the Nasdaq has been since the lows and recently hitting new highs, we are literally right at the all-time highs from March 2000. The question I’ve been asking (because I do not know the answer), is whether or not this is a “new” Nasdaq impossible to compare to 2000? I posed this question during my panel at the Finance Festival this weekend, and I still do not have an answer. I’m going to go with math and ask: OK, looking all over the world at all asset classes, stocks, bonds, commodities and currencies – is buying the Nasdaq100 right here at all-time highs, where it fell 80% last time we were here, the best risk vs reward opportunity? Stated this way, my answer is an easy no.
Looking more short-term I will say that the fact that S&Ps were able to rally back above 2040 to get back into this range since the first quarter is very impressive. That breakdown in August could have been disastrous, but now we’re back into it. This doesn’t necessarily argue for an uptrend, but for now, it takes downtrend out of the equation. Here we are near a flat 200 day moving average which screams: lack of trend. So it makes sense. As I said since mid-March, we want to be long if we can breakout above this range and get short if we break below. This worked well in August and we will continue to look for a new resolution out of this range before getting aggressive again in any direction:
Back in August, when we broke to the downside of this big range in S&Ps, I came up with some scenarios that would make me lean more bullish and be less pessimistic. I always think it’s important to make a counter-argument. There were 2 things I wanted to see, a rally that holds above 2040 in the S&P500 and the Dollar/Yen above 122. This level goes back to the market top in 2007 as we can see here:
And here is the short-term look. I would argue that if the S&P500 can stay above 2040 and USD/JPY remains above 122, it is hard to be bearish towards the U.S. Stock Market as a whole:
There have been plenty of opportunists over the last several months, both long and short. I wanted to stay away in since March, then hated stocks in August, but the weight-of-the-evidence suggested getting aggressively long in late September. I think we will continue to see tactical opportunities in U.S. Stocks, but where we stand today, this minute, I think the best places to be (long and short) are outside of the averages. I think you need to pick and choose between stocks and sectors. Notice the difference in returns between the Nasdaq100 and DJ Transportation Average this year. I would expect similar disparities between sectors and stocks going into the end of 2015 and early in the first quarter.
A wise man once told me, “JC, if you trade the averages, you get average returns”. I think where we sit today, this is even better advice than usual.
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Tags: $SPX $SPY $ES_F $QQQ $COMPQ $NQ_F $IWM $MDY $IWC
Are you guys having fun yet? I tend to enjoy this sort of market environment where stocks go both up and down. This is what we like to call, “normal”. For us market participants that look at all asset classes, particularly currencies and commodities, we know that normal markets move in both directions. Long-term trends can be up and they can be down, while counter-trend moves lasting weeks or months are the norm. For some people that only look at U.S. Stocks, that concept may have been forgotten as the major U.S. averages trended mostly higher the past 6 years, although we did have some short-term corrections along the way.
The title of this post, “It’s the Yen Stupid” was inspired by James Carville during Clinton’s presidential campaign in the early 90s. He used Economy, not yen, but I think you get the point. As market participants, we’re not here worried about China, or Greece, or a rising rate environment (that one is hilarious by the way), we only care about what is happening between supply and demand. Searching far and wide for clever reasons as to “why” the market is doing what it’s doing just seems like a complete waste of time. Remember that Mr. Market has never paid a single person in human history for
knowing guessing “why”. We would rather focus on things like “What”, “When”, and “For How Long”.
Coming into the new year, everyone had an opinion on what might unravel the bull market in U.S. stocks. We’ve heard them all, so there’s no reason to drag that nonsense on. Chatting with buddies of mine that look at markets in a similar way that I do, I always brought up the fact that the Japanese Yen was approaching lows not seen since 2007, just before the U.S. Stock Market peaked. With such strong negative correlations between Yen and U.S. Stocks, I thought that if we found support in Yen near the 2007 lows, it could present a major problem. Well, here we are.
Market observers will point out that it’s not the Yen dragging the S&Ps, but more so the S&P500 volatility causing unwinds in the Yen carry where short sellers of Yen now have to buy it back as they liquidate their speculative positions in stocks and other risk assets. That may or may not be true, but does it even matter? Is it relevant which one sparks which? Or do we just care that they move inversely? I’m a fan of the latter, obviously.
Here is a weekly bar chart of USD/JPY which shows the Yen bottoming out in the Summer of 2007, just around the time that all of the major U.S. Stock Market Indexes were topping out. Remember, in this chart Yen is the denominator, so a top in USD/JPY represents a bottom in Yen. Notice the failed breakout in 2007 above the prior two peaks from the previous 18 months. Now look today at how eerily similar the failed breakout this Summer appears on the chart:
There is a very strong negative correlation between U.S. Stocks and Japanese Yen. In fact, the further back you go, the higher the negative correlation coefficient becomes between the S&P500 and the Japanese Currency. We’re looking at levels near or above -0.9 across the board going back a month, a year, 3 years, 5 years, etc.
Is money flowing into Yen because it is coming out of U.S. Stocks? Perhaps. Is strength in Yen causing the selling in U.S. Stocks? Perhaps. Does it actually matter whether the tail wags the dog or just that there’s some wagging taking place here?
Facts are facts, it’s just math. I would argue that further strength in Japanese Yen will continue to wreak havoc across U.S. stocks and evening specials about markets in turmoil are here to stay. For a lower volatility environment and a stronger stock market, we want to see USD/JPY getting and staying above 122. This was the level in 2007 and it is the level that we’re once again focused on today.
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Tags: $USD/JPY $FXY $$6J_F $SPX $DJIA $qqq $RUT $IWM $IWC $COMPq $NYA $TNX $DIA
One of my favorite setups across markets are when prices make new highs, momentum does not confirm and then prices fall back below those former highs. Some people like to call these whipsaws, others call them failed breakouts, some call them bull traps, etc. Regardless of what you want to name them, the setups are great because the levels are usually so well defined.
Today we are looking at the Russell2000 exchange traded fund breaking out to new highs this year only to get back down to that former breakout level represented by the highs in March, June and December of last year. Let’s call it $121. This is a weekly chart so we can see how when prices broke out this year, they have remained above those former highs, but notice how momentum did not confirm and put in a bearish divergence.
When markets make new highs we want to see momentum putting in new highs as well. We use a 14-period RSI to represent momentum. In this case, not only did momentum not put in new highs to confirm the new highs in price, but RSI did not even hit overbought conditions. We’ve been making lower highs now for almost 2 years.
I don’t see any reason to be long the Russell2000 if prices are below $121. If we’re above that then $IWM is fine. The good news is that we have a very well-defined level, which to us is the most important thing. I would not be short $IWM if prices are above $121, but below that and shorts are fine in my opinion.
(Looking a bit more short-term, $IWM is down to the lows from March and May of this year so this is a big level. A break should have some bearish consequences so we’re watching this closely)
Click Here to receive weekly updates of this chart on multiple timeframes including the S&P500, Dow Industrials, Nasdaq100 and the other major U.S. stock market indexes.
Tags: $IWM $RUT