The Process

Today I want to go over process. A lot of people like to skip out on this part and instead try and come up with some sort of magical scan that will spit out a list of tickers to buy or sell. This might work once or twice, but with an always evolving global marketplace where it's not different this time, it's different every time, your scan will stop working. I promise. The only way to consistently find ongoing themes in the market, both domestic and globally, is to do the work. You have to go over all of them, otherwise you're only cheating yourself. I do this for a living, so it's fine. But for others who might not have the time for it, due to family, business or other obligations, they become Members of All Star Charts and get my homework in real time, all the time.

The reason I've been saying over the last week that it's time to take profits on U.S. Stock Market Index longs is because our targets were hit. This is when we get out and move on to something else. What happens to the asset after we have exited the position is not our problem. It can go higher or it can go lower. It doesn't matter. From our perspective, it's now someone else's problem. Eventually there will come a time, whether immediately or perhaps years down the road, where there will be another favorable risk vs reward proposition in that particular asset that is worth us putting our money into.

After our targets are hit and we get out, it goes back into the watch-list just like everything else. We are always looking to go short or long on all of them and it would be irresponsible not to keep an open mind at all times. I want to walk you through the process so you can get a better idea as to how this works:

We came into the year Bearish, looking to have short positions in the U.S. Stock Market Averages, short most U.S. Sectors, short Emerging Markets and Long U.S. Treasury Bonds and Japanese Yen. This worked out favorably of course as markets got slammed into January 2016 and we could not have been happier to see stocks get destroyed. But by January 20th, most of our downside targets had been hit, especially globally in emerging markets. Most U.S. Sectors and U.S. Indexes hit our downside targets as well on or near January 20th. At that point we wanted to be covering all short positions. What happened to these stocks after that was no longer our problem.

Without a reason to get aggressively long just yet, the weight-of-the-evidence suggested that a large cash position was best. In other words, cover shorts, but not ready to get long yet. Here is the quote from January 20th:

"Based on many targets being achieved, a very large cash position is our best approach from where we sit today"

Shortly thereafter, over the next 2 weeks, we started to lay out new long positions to take advantage of the bullish momentum divergences near key support levels across the board: both U.S. and abroad, although the better trades were definitely internationally, especially emerging markets. See South Africa. On January 26th, specifically, I put out a post titled, "The Best Way To Benefit From This Rally In Stocks". We wanted to be long the major U.S. Indexes, Latin American Countries, Gold Miners, etc.

Since then we have seen one of the most epic global stock market rallies in a long time. Most people I see and read out there missed this and is likely the reason you're not hearing much about how powerful this rally has really been. You have sectors and global indexes up over 30% during this period, yet all you keep hearing is gossip about the federal reserve and the latest comments from Trump and other candidates. You see the difference? Gossiping vs trying to make money in the market.

At this point, however, we have now achieved most of our upside objectives in the U.S. Indexes, individual U.S. Sectors and Stocks, Global Indexes, key Commodities like Oil and Copper that helped turn us bullish in January, etc. Is this where we want to be putting on new long positions? No. We want to be taking profits and moving on to other things. Now, just because our upside targets have been hit, do we want to start getting aggressively short? Nope. There is not enough evidence to do that just yet.

So what happens now? What do we do with all of these former positions that we've loved over the past 2 months? The answer is: nothing. These positions are no longer our problem. Apple can double in price or it can go to zero. Why should we care? Our upside target was already hit. Now it's someone else's problem. What about Oil? What now? Nothing. Who cares about oil? What about Coca-cola? What now? Who cares, our upside targets were hit. Not our problem anymore.

All of the stocks, commodities and currencies that have hit our price objectives are now back in the watch list like everything else. We treat them no differently. We do not want to be emotional just because we nailed a trade, or perhaps missed out on an opportunity. If you nailed it, great. If you missed it, too bad. There will be plenty of others in the future, I promise. But former tickers in your portfolio are irrelevant today once they've reached our upside objectives.

What do we like now? We like the Agricultural Commodities. I think they go a lot higher and the risk vs reward opportunity is skewed in our favor just as were stocks 2 months ago and just as bonds were 3 months ago. There is always an opportunity somewhere, you just need to go find it. That's where I come in. Our Research Platform gives you access to all of my homework in real time.

I hope this gives you some insight into my process. It is the same process that will help me find whatever ongoing theme is changing or accelerating in the future.

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