This week was our monthly conference call for Premium Members. We discussed a lot of things, mostly surrounding the fact that stocks are in uptrends all over the world and we are seeing broadening participation among stocks in the United States. Sectors that had been left for dead the past 6 months like Industrials and Materials are now coming up on all of my momentum and relative strength screens. Healthcare and Utilities are also breaking out to new highs. It’s not just one sector or a handful of stocks with some stupid acronym. This is a stock market rally that I believe is a lot younger than most people believe.
Today I wanted to share with you one of the things that has stood out to me the most over the past couple of months. It should not be a surprise really because I’ve been pointing to the way this is setting up since late last year. I think this can really be a monster. I definitely recommend watching the video archive of this month’s call. We’re talking over 150 slides filled with short-term, intermediate-term and longer-term trade ideas that all fall within a much larger global macro thesis. I encourage you to start a 30-day risk FREE trial at this discounted price and take full advantage of what can easily be one of the most rewarding 1 hour sessions of your year at absolutely no risk to you!
Here’s a little preview of the call:
While still within a secular uptrend relative to the rest of the market, this trend has really been more of a consolidation over the past half decade than anything else. But based on the overwhelming weight-of-the-evidence, this consolidation looks just about complete and the next leg higher is likely beginning very soon, if it hasn’t already begun. Take a closer look at this relative strength in Industrials. In my experience, the higher probability outcome here is an upside resolution:
Now that we can see what relative strength looks like, let’s take a look at Industrials on their own. This is the $XLI exchange traded fund representing the S&P Industrials Index. This is not the first time I’ve been bullish Industrials. This sector was a screaming buy last Summer and early Fall. But our initial targets were hit in Q1 this year. After some consolidation, prices have since resolved higher. I think the XLI reaches its next upside objective above $76:
If you want to look inside of Industrials to see what could possibly take the broader sector higher, look no further than Airlines and Railroads. To me, this looks like an upside resolution in the AMEX Airline Index $XAL that is about to make a run towards those former all-time highs in the 1990s:
We’re seeing a similar breakout in Railroads, except to all-time highs above former overhead supply from 2014. If we’re above the 2014 highs in Railroads, this needs to be a long position:
This is what is called the top/down approach. We start with a larger more macro thesis. In this case it is bullish stocks as an asset class. Then we break it down by country, and yes the United States is in an uptrend and certainly participating in this much more macro bullish environment. So then within U.S. stocks, the Industrials are showing both relative and absolute strength.
So what’s next? We break it down to the sub-sector and then eventually to individual stocks. We’ve already pointed out the strength in Railroads and Airlines. So here are 2 examples of stocks that are likely to lead the charge higher. The first is Kansas City Southern. We want to be long $KSU if we’re above 1000 with a target up near $125
The next one is Delta Airlines. This base is very clean. We want to be long $DAL if we’re above $53 with a target up near $65:
I encourage you to go through the entire list of stocks in the S&P Industrial Index. There are only about 70 of them, but finding poor performing stocks in downtrends is not an easy task. Here are a few more good ones that stand out to me. This is Ingersoll-Rand $IR. If we’re above $85 I think this needs to be owned with a target up near $109:
Here is Textron $TXT. If we’re above $48 I like this long with a target near $57:
Finally here is Masco flirting with the former all-time highs from over a decade ago. The way I learned it is: “The bigger the base, the higher in space”. How about a decade+ long base?
Taking a closer look, I like $MAS long if were above$37 with a target above $42, but with much more upside potential considering the size of this consolidation shown above:
This is just a little sample of the things we discussed on this month’s Conference Call for Premium Members. I want you to know how much I value the fact that you come to this site for ideas and macro context. Don’t think that I take that for granted even for a second. The past 7 years writing on this platform has been an amazing journey and I understand fully that this is just the beginning.
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