Last week I published, A Non-Random Walk Through The S&P500, where I went into detail about what I’m seeing across every single sector in the United States until I’ve gone through all 500 stocks in the entire S&P500. This is done on both a weekly and daily timeframe, so it’s a little over 1000 charts in total. Without a doubt, the conclusion was clear: this is still a stock market environment to buy weakness, not to sell strength. In this month’s Conference Call we discuss a lot of the supplemental data, particularly around the world, to support those bullish views towards stocks. While there is a nice list of trade ideas in this call, I encourage you to use the Walk Through The S&P500 and this Conference Call together. I think they compliment each other really well. [Read more…]
[Premium] Should Stock Market Bulls Be Concerned About Credit Spreads?
The way I learned it was that the Bond Market is smarter than the Stock Market. I’ve heard theories that it’s because the Bond Traders are smarter than stock jockeys. Maybe it’s because the Bond market is a lot bigger than the Stock Market. Maybe it’s all a bunch of nonsense. Who knows? The way I like to approach it is simply to use them both to my advantage equally. They both play a role in the process. When we see evidence of risk appetite in the stock market, we want to see the bond market confirming that and vice versa. It’s when one is suggesting one thing and the other is signaling something else that we start to question what is really going on here.
Today we’re going to focus on 3 specific spreads that we want to be watching closely here as the Summer comes to an end.
The Two Most Important Charts In The World Right Now
Every market environment is different. It’s changing every day. What might give us insight into what’s happening during one period of time in the market doesn’t guarantee that it will help in the future, or ever again for that matter. Back in 2008-2009, correlations spiked all over the world and the US Dollar was moving in the exact opposite direction as the S&P500. Watching the Euro and more specifically the Euro/Yen was a huge advantage back them. I remember it like it was yesterday. But in today’s environment, those negative correlations are no longer valid. It’s a different market environment now. It’s always different.
So while the EUR/JPY and the US Dollar Index were great tells for the direction of US Stocks in 2008, today we’re looking at different indicators. Two that I’m particularly focused on right now are Germany and London. First of all, these are 2 of the most important indexes in the world. Top 3? Top 5? Either way, both of them are on the Mount Rushmore of Stock Market Indexes. [Read more…]
[Premium] Members-Only Conference Call Monday August 21st at 7PM ET
Every month I host a conference call for All Star Charts Premium Members where we discuss ongoing themes throughout the global marketplace as well as changes in trends where new positions would be most appropriate. This includes U.S. Stocks & Sectors, International Stock Indexes, Commodities, Currencies and Interest Rate Markets.
We’ve been bullish towards US and Global Stocks once again since May. I still think this is an environment where we need to be buying weakness in stocks, not selling strength. The weight of the evidence is still pointing to an increased amount of risk appetite, not risk aversion. I ran through all 1000 charts of the S&P500 stocks on both weekly and daily timeframes and there are more good ones than bad ones. A lot more good ones, in fact. It’s hard for me to fight that.
I’ll do my best to lay out my weight of the evidence conclusions and walk you step by step with how I got there! This month’s Conference Call will be held on Monday August 21st at 7PM ET. Here are the Registration Details: [Read more…]
[Premium] A Not So Random Walk Through The Entire S&P500
It’s the middle of the summer and everything is quiet. Even the slightest bit of volatility brings in the panic. It’s pretty amazing to watch. There are two schools of thought here. First, the historic short positions in S&P500 Volatility Index Futures have their monthly unwind, and stocks get adjusted accordingly. It’s a volatility trade unwinding causing these 1 or 2 day spikes. But then the shorts come back in, make money for a period of time and then get swept out again, like this week. The cycle repeats. Now we move on again and volatility shorts crush it for the rest of the summer. That’s thesis 1.
The other scenario is that there is a lot more squeeze behind this one and stocks can have a much bigger and longer adjustment. Take a look at the C.O.T. Reports. The numbers are outrageous. These Volatility shorts are natural buyers of volatility. It’s scary when you think about it. But regardless, they stay short. It is what it is. Stocks continue to shake them off. But is this time different?
We’re going to try and answer that question by going through 1000 charts of the S&P500. Each of the 500 components of the index on both a weekly and daily timeframe. We are going into this exercise with no bias whatsoever. We cannot care in which direction the market is moving. We just need to take the weight of the evidence as it comes and position ourselves as best we can. This is one of the most valuable tools I have, going through this 1000 chart process. I want to walk through it with you this time just so you can understand where I’m coming from when I come up with my ultimate conclusions, or questions for that matter.
A wise Egyptian man once told me,
If you trade the averages, you get average returns
So we’re going to focus on individual stocks today.
We’re Looking For Oversold Conditions
One of the most classic characteristics of markets that are not trending higher is when momentum is getting oversold. Markets in uptrends don’t get oversold. They get overbought! Think about it: How can an overwhelming amount of buyers possibly be a bad thing?
I understand there are some strategies that wait for oversold conditions in their indicators to trigger buying opportunities and other things like that. That’s cool. But when I am referring to momentum, I am specifically describing a 14-period RSI. For today’s discussion we’ll focus more on 14-day RSI for this specific timeframe. If we were having a longer-term conversation, we would be looking at a 14-week RSI on a chart that goes back decades. Currently, the weekly chart is in a bullish range, so that is not in question. Today we’re focused on the coming months and quarters.
The Relative Strength Index (or RSI) is a momentum Oscillator. All that means is that it ranges from 0 to 100. Oversold conditions are when RSI falls below 30, and over bought conditions are when RSI gets above 70. While other people use different momentum indicators, RSI is the one for me. See Momentum in Allstarcharts EDU. Even if you use other momentum indicators, the one thing I will encourage is to stick to one or 2 at most. Less is more, trust me. Price is the most important thing anyway, so why add additional supplements for the same purpose.
In 2015, one of the reasons I was so bearish was because momentum hit oversold conditions in the S&P500 during the August decline. It became very clear at that point that we needed to sell into strength, not buy into weakness. The trend had clearly changed when prices broke that 2040 support that had been in place since February. Momentum confirmed that. The following January, momentum hit oversold conditions once again, but on the February low, RSI put in a bullish divergence. This was the first bullish signal that momentum had given us. [Read more…]
Is This The Top For The S&P500?
Maybe this is the top for the S&P500. And maybe the Dolphins win the Super Bowl this year. And Maybe I’ll have steak for dinner on Friday.
The best part about this business is that none of us know what’s going to happen tomorrow. It doesn’t matter what you’ve accomplished until now. We’re all trying to win the same war moving forward. It’s pretty cool when you think about it. [Read more…]
Introducing: Technical Analysis Radio
The smartest people I know consume the most content by reading books and listening to podcasts. That’s just what it is. The common denominator among some of the least successful people I know is that they don’t read books or listen to podcasts. They choose to spend that time watching the news. They read newspapers, magazines and things written by journalists, instead of actual professionals. I want to know what market participants are doing. I don’t want some 26 year old with no investing experience deciding what is or isn’t important to me. Let me hear it straight from the horse’s mouth. That’s why I like reading books and listening to podcasts produced by the actual market professionals themselves!
As much as I enjoy listening to the great podcasts that are already out there, like Barry’s Masters in Business and Patrick’s Investors Field Guide, us Technicians don’t have one of our own. I think it’s about time we change that…. [Read more…]
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