At the beginning of each week, we publish performance tables for a variety of different 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 continue to harp on the risk-on themes that support our bullish macro thesis.
Key Takeaway: There is ample evidence of investor complacency, optimism, and aggressive risk-taking.
The behavior of the broad market (another breadth thrust last week and the weekly NYSE + NASDAQ new high list is at its highest level ever) suggests some of this may be justified.
Sentiment is likely to become a more acute headwind when rally participation narrows and/or optimism remains elevated in the face of market volatility.
For now, optimism has been revealed as a mile wide but only an inch deep, with concern rising the moment the market stops rallying.
If you're ignoring the Indian Stock Market, I think you're doing yourself a huge disservice.
Even if you never plan on trading stocks in India at any point in your life, it doesn't matter. There's amazing information coming from there.
For example, take a look at that relative strength in Indian Bank stocks before US Stocks, and Stocks in general, rallied throughout 2019. That was an epic rally, if you recall.
The Indian Banks had already been telling us that it was coming!
If Bitcoin's run to $50,000 or the latest YOLO stocks aren't too distracting right now, you might have noticed Crude Oil just registered new 52-week highs for the first time since fall 2018.
Or maybe you're ahead of the curve and caught our post about the Energy Sector experiencing what looks like a bullish initiation thrust just a few weeks ago.
Or perhaps you saw Financials just closed the past week at fresh all-time highs... finally breaking out after almost 15-years of no progress!
On top of all this action, the US 10-Year Yield is also pressing on its highest level in almost a year.
It's clear that more cyclical stocks and economically sensitive Commodities are taking on leadership roles. We're in quite the risk-on environment.
Considering the evidence we just listed, it's finally time to address the elephant in the room...
Nifty Industrial Manufacturing has been performing well and has caught our attention over the past two weeks. We selected Cummins India and Siemens Ltd. in our Trade of the Week before. But it seems like the other constituents are catching up as well.
We thought we could look at actionable ideas in this sector as several stocks are breaking out of big bases.
We created an Equally weighted custom index of the Industrial Manufacturing sector and this line chart reflects exactly what we're seeing in the individual constituents. A breakout in this index is suggesting further upside as an increasing number of stocks participate in the rally going forward.
There's nothing wrong with betting on the next direction of a stock, or the market in general. But let's be responsible about admitting that we're wrong, when we get it wrong.
Regardless of your strategy, whether it's technical, fundamental, economics or even if you base your analysis on the movements of the stars and the moons, it all comes down to risk management.
How good are you about admitting that you got it wrong and moving on? If you suck at it, then you're not going to do very well and you'll be gone soon. That's economic Darwinism at it's finest.
The ones who are the best at admitting they were incorrect in their assessment, and doing so the fastest, are the ones who make (and keep) the most money over time.
It's really that simple.
How do you lose weight? Eat less and workout more. Duh.
But cupcakes and pizza are delicious.
Just like admitting we're wrong is very difficult for us. It's one of the hardest things for humans to do.
What we do here is take a chart that's captured our attention and remove the x/y-axes as well as any other other labels that'd help identify it. This chart can be any security of any asset of any timeframe - on absolute or relative basis.
Maybe it's a ratio, a custom index, or maybe 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 it 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?
In a further effort to identify individual equities that fit within our larger Macro thesis, we recently rolled out our latest bottoms-up scan: "The Minor Leaguers."
We write a post every other week where we outline some of our favorite setups from the watchlist.
We've already had some great trades from this universe and couldn't be happier about the early feedback.
Moving forward, we'll be rotating this column with "Under The Hood" each week.
In order to make it onto our Minor League list, you must have a market cap between $1 and $2B. There are also price and liquidity filters.
Then, we simply sort the stocks by their percentage from new highs. Easy done.
Don't miss this weeks Momentum Report; our weekly summation of all the major indexes at a Macro, International, Sector and Industry Group level. As a reminder, we analyze this shorter-term data within the context of the structural trends at play.
Willie tweeted this morning and made reference to some of the staggering median stock performance numbers off the 52 week lows. Again, not a lot of context here but some of these numbers are very eye opening. IWC (Micro caps) are +175.8% off the 52 week lows!
We retired our "Five Bull Market Barometers" in mid-July to make room for a new weekly post that's focused on the three most important charts for the week ahead.
This is that post, so let's jump into this week's edition.
