We've all been there and we've all seen others do it to. We get one data point and then all of sudden we're drawing direct conclusions based on that number. Think about how silly it sounds to make decisions based on a government report or even single chart or "technical pattern".
The first thing we need to do is take a deep breathe (We live better when we're breathing). Then we want to ask ourselves, "Ok, this is new data. How does this fit within the context of all the other data points". We also want to identify how much weight we want to put on this particular data point.
It's funny, when I first started studying for Sommelier exams, I caught myself doing the same thing. Instead of looking at the wine, smelling it, tasting it, thinking about what it could possibly be and then coming up with a guess, I was already making guesses just by looking at it. Light body? Pinot Noir!!! Heavy tannin? Napa Cab!!! Low acid white? Viogner all day baby! Wrong, Wrong and Wrong again!
You've got to love a stock breaking out of a seven-year base and doing so with options pricing in the lowest volatility levels all year. And when it is in a strong sector that has been among the leaders all year, I'm licking my chops.
The TSX Composite is peaking its head out above resistance and into the fresh air of all-time highs, but can the recent strength continue?
Today we're looking for answers in two sectors that matter, Financials and Energy, which account for roughly 50% of the index's weighting.
First off, here's the TSX Composite Index breaking to new all-time highs, slightly exceeding its former highs of 16,650. Momentum has yet to get overbought, but if prices are above that level then we need to be erring on the long side with an upside objective of 18,300 over the next 6-12 months.
One of my favorite parts of living in Sonoma, CA is going to the local market. I'm right in the heart of wine country so anything protein or produce is going to be off the charts. On the way out of the store on weekends and/or early in the week, it gives me a chance to glance at the papers and magazines. This happens much less frequently these days vs when I lived in New York City and could catch a peek at some of the cover stories every day and usually multiple times on every block.
So this weekend I'm walking out of the store double fisting sea bass (on my way to make Greek Carpaccio), and caught a quick glance at the Barron's cover story which suggested selling Railroad stocks! I'm certainly not going to take the time to read what it says, but I saw enough to turn it into a blog post explaining why I want to take the other side. To be clear, I don't mean to pick on Barron's. They're a legendary publication and quote me regularly. But that doesn't mean we have to agree all the time.
Here is this weekend's cover, for those who haven't seen it:
Raoul Pal is someone whose work I've admired for years, both for his global macro perspective on the markets and the amazing job he and his team have done with Real Vision. I like how they've removed a lot of the conflicts of interest that come with traditional media reporting and the sensationalizing that comes along as a result.
When was the last time Small-caps were not a mess? At least a year now right?
The bearish argument has been that small-caps (and others) are underperforming the large-cap stocks and therefore, the divergence is a warning signal that the market is about to fall apart. Along the way, I've asked the question,
What if we get rotation into small-caps rather than the rotation out of large-caps that you keep promising me?"
In other words, instead of the last ones finally falling, what if the stocks down in the dumps get their act together and start playing catch-up?
What does the market look like in that scenario?
Well, I'm still in the camp that we see the latter, rotation into small-caps, not the former where the S&P500 crashes and we go into recession. Here are small-caps relative to large-caps. If we are going to start to see outperformance from the little guys, this would certainly be a logical place for it to start:
In this Episode of Allstarcharts Weekly, Steve and I talk about the fact that the only sectors making both weekly and monthly all-time highs are Consumer Staples, Utilities and REITs. That's not exactly the type of leadership one might expect to see in a strong bull market, leading many to believe that it is not, and therefore we should be selling stocks. My argument is that while on paper, yes, technically those ARE the only ones making new "weekly AND monthly" all-time highs, sectors like Technology, Consumer Discretionary and Communication (heavily weighted $FB & $GOOG) are just a stone's throw away from doing the same. These are all far from "Defensive" sectors. I think the positive rotation continues and these sectors play catch-up.
In elementary school, nothing was more interesting to me than Space. And a quick look at my Lego collection would confirm this in two seconds flat. I was obsessed. But more in the "great unknown" way. So many questions. So many possibilities.
As an adult, I'm still fascinated by people (Elon Musk, Richard Branson, etc) and companies who are involved in trying to bring humanity into space and further exploration. And it makes me happy to see the stocks that represent these endeavors do well, because its often a clue that they are on to something, that they are making headway.
In recent days, the US Aerospace & Defense ETF, which tracks all the biggest names in this space, showed signs of making new discoveries -- of all-time high price territories.
If you've been in our world long enough you've heard someone say, "Technical Analysis Is Voodoo". As far as I'm concerned, the more people who think that the better it is for us! As Technicians we are analyzing the behavior of the market and its participants. Our human emotions are driven by fear and greed and therefore markets trend, by nature. This is why Technical Analysis works. Today I sit down with Sebastian, the wine maker at Rancho Maria Winery in Sonoma, CA, to discuss this very topic.
There are a lot of messy charts out there, but we've been discussing the importance of having a global perspective and using weekly/monthly charts to stay focused on structural trends as opposed to the day to day noise/chop we've been experiencing.
Today we want to look at an area showing relative strength that's still offering opportunities for those who need to put cash to work.
Sometimes we spot an opportunity, but we have to be quick to capitalize on it. Fading volatility spikes is one of those situations. If we're willing to take on a little more risk in favor of a high probability setup and we act quick, nice profits can be earned. We've got a play in Gold developing right now that offers up this potential.
