According to Charles Darwin, you cannot make observations without some kind of underlying theory. And if you have any theories about financial markets, you understand thinking about what could or should happen with your investments.
These concepts can be useful if they help us prepare for what is happening in the markets. But they can also impede or obscure reality.
We can observe and project all we want -- so long as we don't get distracted by the what could and what should that we lose sight of what is.
I don't see this as an argument in favor of always being bullish or a warning about the risks of needing to be proven right. Instead, it's an encouragement to agnostically acknowledge and operate within the market as it is rather than as we wish it would be.
It’s about pursuing the opportunities that are before us even when they are unexpected.
From the desk of Steve Strazza @sstrazza and Louis Sykes @haumicharts
Welcome to our latest RPP Report, where we publish return tables for various asset classes and categories, along with commentary on each.
Looking at the past helps put the future into context. In this post, we review the absolute and relative trends at play and preview some of the things we’re watching to profit in the weeks and months ahead.
We consider this our weekly state of the union address as we break down and reiterate both our tactical and structural outlook on various asset classes and discuss the most important themes and developments currently playing out in markets all around the world.
In our last report, we discussed all the whipsaws we had been witnessing in recent weeks and noted that the next major piece of information would be the velocity of the reactions these charts made in the opposite direction.
What we do here is take a chart that’s captured our attention, and remove the x and y-axes as well as any other labels that could help identify it.
This chart can be any security, in any asset class, on any timeframe. Sometimes, it’s an absolute price chart. Other times, it’s on a relative basis.
It might be a ratio, a custom index, or maybe the price is inverted. It could be all three!
The point is, when we aren’t able to recognize what’s in front of us, we put aside any biases we may have and scrutinize the price behavior objectively.
While you can try to guess the chart, the point is to make a decision…
So let us know what it is… Buy, Sell, or Do Nothing?
"I like an $AMZN February 3800/3900 Bull Call Spread for an approximately $29.00 – $30.00 debit. This means we’ll be long the 3800 strike call and short an equal amount of 3900 strike calls."
To learn more about the trade and the thinking behind it, click below to watch a replay of the Live Stream.
As many of you know, something we’ve been working on internally is using various bottom-up tools and scans to complement our top-down approach. It's really been working for us!
One way we’re doing this is by identifying the strongest growth stocks as they climb the market-cap ladder from small- to mid- to large- and, ultimately, to mega-cap status (over $200B).
Once they graduate from small-cap to mid-cap status (over $2B), they come on our radar. Likewise, when they surpass the roughly $30B mark, they roll off our list.
But the scan doesn’t just end there. We only want to look at the strongest growth industries in the market, as that is typically where these potential 50-baggers come from.
Key Takeaway: Investors continue to favor stocks as money relentlessly pours into equity ETFs. It’s no wonder, given that the main stock indexes are printing new record highs. Yet, a depressed risk appetite and an unsupportive breadth backdrop accompany the persistent push higher in equities. Though these suspect undercurrents aren’t apparent at the index level, we see signs that short-term attitudes are shifting. Bears are on the rise, with the average of the II and AAII bears trending higher. However, pessimism remains relatively mooted and optimism is still elevated when viewed through either a cyclical or strategic lens. The current environment suggests there is more risk than opportunity for equities from a sentiment perspective.
On this episode of the podcast, I sit down with Ed Clissold, Chief U.S. Strategist at Ned Davis Research.
I've been a big fan of Ed's work for a long time, not to mention Ned Davis is one of my personal heroes.
The work they do over there has been inspiring to me throughout my entire career. So as you can imagine, it was so fun and such a pleasure to chat with Ed.
We talk about Market Breadth, Sector Trends, Momentum and Seasonality.
If you have any exposure whatsoever in the market, or even thinking about putting on exposure, then this is the episode for you!
During our team's weekly strategy meeting this morning, we were chatting about how the retail sector has just been hanging in there. And don't we know it -- we've had a long puts play in $XRT (the retailers ETF) since late July that hasn't gone anywhere for us. Our thinking was this sector would be the one to lead us down if the markets wanted to trade down.
Instead, it's been hanging tough and JC remarked that it might act as "a big trampoline" for some of the notable names in the space if we start moving higher.
And of course, the 800-pound gorilla in the space is Amazon $AMZN, so if we're going to play a move higher in retailers, it makes sense to start here.
We get to see monthly candlesticks and refocus on the broader trend. We've said time and again how messy the current market is. When we look at the daily chart, we see a mess. When we look at a weekly chart, we see a mess. But when we look at monthly charts, a lot of things become clear.
It's almost as if you're trying to take a picture but the lens is unable to focus on the object. Monthly candlesticks correct just that. They help us focus on the object and present a clear picture of the trend.
We took a peek at some of the charts, and at a broader level, we thought these help understand some trends clearly.
As discussed in yesterday’s Market Notes, last week’s rally has us questioning whether we remain in the choppy market that has been experienced on many levels for the past few months or if we are poised for some degree of resolution to the upside. Today, we’ll take a closer look at what that could mean across stocks, bonds and commodities. As market depth evaporates ahead of the Labor Day weekend, there is no reason to believe that what we talk about has to happen this week.
