Bonds Funds are breaking out to new 3-month highs. This comes after consensus this September was for higher US rates, and therefore, lower prices for bonds. When the market is leaning too much in any one direction, the unwind of that extreme positioning can be intense. That's what I believe has been happening throughout the 4th quarter.
Here are two charts that show rates could continue lower for some time. The first is a long-term chart of the US 10-year Yield failing to break out above the downtrend in place since 1981:
Coming down the homestretch of 2018 and Mother Market sure is making it interesting. Will a "Santa Claus" rally save global stocks? Or is the Grinch quietly whispering in her ear?
Speaking of the Grinch and classic holiday movies, my family's Netflix consumption has been on the rise this holiday season. But as we know, the stock market is a forward looking mechanism and the outlook as foretold by prices is suggesting that softness is ahead for $NFLX stock.
This being the holiday season and all, you'd be forgiven if you didn't want to put on any new risk heading into the New Year. But for those of us still standing in the ring ready to do battle, $NFLX is streaming a tasty short play opportunity.
These are the registration details for our live monthly conference call for Premium Members of All Star Charts India.
This month’s Conference Call will be held on Tuesday December 22nd at 7PM IST. As always, if you cannot make the call live, the video and slides will be archived and published here along with every other live call since our launch.
This week I'm thrilled to have David Keller on the podcast. He is a former President of the CMT Association and spent a long time at Fidelity, and Bloomberg before that. In this episode, the current Chief Strategist at Sierra Alpha walks us through why is approaching the U.S. stock market from a more neutral perspective. We discuss US Treasury Bonds, Rates, Gold, Crude Oil and other assets that are making new highs like Palladium. I really enjoyed this conversation, especially how David compares trading to risk management as a pilot. He likes to fly planes when he's not looking at charts. This was a fun chat.
From where I sit, the correction in banks is a long way from being resolved, and one of the biggest names in the biz appears to be teetering on the edge of a much more significant drop than already experienced. It's now down for the year and significantly below both 50- and 200-day moving averages.
So far in the early stages of this market correction (dare I say Bear Market? Too Soon?), I've been aggressively deploying Bear Call Spreads to attack bearish trading opportunities.
Bear Call Spreads are a version of a vertical spread that consist of a short call at or slightly out-of-the-money and a long call further out-of-the-money. The profit profile of bear call spreads typically maps out like this:
There is a reason we look at the stock market from a global perspective. It's because we invest in a global market. Stocks in America weren't going up the past couple of years because of what was happening in DC or New York. Stocks in the U.S. were going up because stocks all over the world were going up.
That changed earlier this year. While U.S. stocks keep making new highs through the Summer, global markets were not participating.
The question was simple: Were we going to get rotation back into Emerging Markets, Europe and other under performing areas around the world? Or was the U.S. just the last man standing and would catch down to the rest of the world. It's clearly been the latter as stocks have come off significantly this Fall.
For clues about what we should expect in U.S. stocks, I think it's important to continue to value the data coming in from global indexes.
Some stocks are going up and most stocks are going down. That's been the trend over the past 10 weeks or so. There is nothing out of the ordinary about that and cash heavy positions have helped us tremendously during this period.
As far as the indexes themselves are concerned, I think it's obvious that they're a mess. You've heard me say it a thousand times, "If you trade the averages you'll get average returns". It's something I learned the hard way a long time ago. Focusing on individual stocks, both long and short in this environment continues to make the most sense based on the weight-of-the-evidence.
First we'll look at the stocks that remain weak. We want to keep selling those if they're below key levels. From the long side, it's hard to ignore some of the relative strength out there. If the market catches a bid, those are likely to be the ones that lead us higher.
I'm not going to sugar coat it. There are numerous stocks and sectors that are hanging on the precipice that look like a small push could send their shares tumbling into a deep abyss. The Regional Banking Sector is one of these sectors. A quick scan across the landscape reveals a tornado of broken charts. And as one would expect, volatility is elevated across the board here and offers great edge to net options sellers.
A retail stock which earlier this year showed tremendous promise breaking out of a FIFTEEN YEAR base has faltered. And any regular reader of All Star Charts knows we're fans of the, "from failed moves come fast moves" phenomenon. In short, if a stock breaks out of an obvious pattern, sucks everyone in, then can't hold its breakout and reverses? Well, oftentimes the moves in the opposite direction can be doubly vicious.
The stock we've identified has reversed hard off all-time highs over the past four weeks, but it looks like the bad news may only be getting started. Friday's close left the stock's chart hanging on a precipice. We're thinking we'd like to give it a little nudge and see how hard it will fall.
Two weeks ago we wrote that the weight of the evidence was suggesting the major indexes in India were getting ready to resume lower. While we were a few days early, most have resolved their consolidations lower. So the question now is, will they continue lower or will they be able to base and head higher? That's the question we're looking to answer in this post.
First let's start with the weakest area of the market, small-caps. Prices were consolidating for about a month in a super tight range, but are now resolving to the downside to continue their long-term downtrend.
Click on chart to enlarge view.
Mid-caps look equally as bad. Nothing in this chart suggests higher prices are ahead, quite the opposite actually.
