If you're bullish coming out of this Autumn's correction, then you're betting that recent lows in the indexes mark significant bottoms.
While we at All Star Charts don't believe Bulls are out of the woods just yet, we're of the view that if stocks can manage to trade in a sideways range for any length of time, that might be long term bullish for stocks and the economy in general.
With this as a backdrop, believers of the bull case should look at Walmart $WMT as a barometer of the American consumer and the willingness of investors to step in and take some risk.
It's a market of stocks, after all. The indexes are one thing, but the components that drive them are another. Last week we laid out a list of the stocks we wanted to be buying for a December rally. The idea was to get involved with stocks already working, rather than trying to get cute and bottom fish the underperformers.
We'll see how that works out. In the meantime, let's take a look at market breadth.
Whenever in doubt, zoom out. Monthly charts are a great way to do that. On November 30th we got new daily, weekly and monthly candles. This is a lot of new data that we have to work with.
We're gonna throw an idea out there for the bulls. They aren't dead yet, apparently. And we don't need to look too far before we come across the healthcare sector and stocks like Pfizer $PFE and UnitedHealth Group $UNH that are at or near all-time highs.
During our recent All Star Options conference call, JC brought our attention to this sector and it definitely caught my attention. With the broader markets kind of "stuck in the muck" right now -- not really offering any clear indication of the next major move -- we might as well add some long exposure against a current portfolio of delta neutral and bearish open positions to help give us some balance.
The best idea on the table right now looks like $UNH. Here's how we're going to play it without risking too much...
The stock market has spoken and it seems clear that we’re stuck in between some pretty significant levels of support and resistance. This argues for more of a sideways mess type of a market vs a complete collapse, at least for now.
We’ve laid out some important prices where something more substantial would be possible. We’ve successfully held above those key prices. A few examples are Technology $XLK above the 2000 highs, Regional Banks $KRE & Broker Dealers $IAI above their respective 2007 highs. In the indexes, 2660 in the S&P500 is a big one. We’re not going to have a complete collapse if these assets are above those levels. It’s if and when we’re below them that the real problems could start.
All of this suggests that we’re in more of a sideways range type market, at least for now. In that environment, if we’re going to buy stocks, we want to buy strength. I don’t think it’s worth messing around looking for mean reversions. We want to buy what has already been working compared to the rest during the past 2 months of selling pressure.
A common theme discussed in this month's All Star Options conference call was the fact that many sectors, commodities, and stocks were in "messy" or "sloppy" sideways holding patterns right now. The selloff that began for stocks in early October and bled into early November seems to have abated somewhat for the time being, leaving many stocks with terrible looking charts offering no clues on direction.
But the price action has not been limited to just stocks -- bonds and commodities too all seem to be lost in the muck right now.
This might frustrate some, but these types of environments can be wonderful for delta neutral income strategies. And Gold $GLD is a perfect example of an instrument showing little commitment to any up or down directional movement.
Welcome back! Thanksgiving week is past us and now we can focus on finishing out 2018 strong.
We don't feel like the market is setting up for any type of major bounce or reversal here or any time soon. We also are cognizant of the fact that US stocks have fallen a good way since early October and the risk for further downside from here is very high. However, you may accuse me of being sentimental, but the optimist in me doesn't think we will see any further scary downside from here through the Christmas/NYE holidays. May we break correction lows? Yes. But I don't expect any major dislocations before 2019. Of course, I've been wrong before and I'll happily eat humble pie again if I'm wrong here.
Either way, whether markets have another slide or if we just coast into the new year, it feels to me the Utilities space is a good place to hang out and collect some premium.
During our members-only conference call and our trade management post we discussed why a more neutral approach is best as we identify whether equities are going to consolidate at higher levels or begin to roll over again. We also discussed the importance of taking some profits quickly in an environment that produces whipsaws in both directions.
Over the last two weeks we've seen a number of our long ideas failing and more of our short ideas working, suggesting that lower prices are likely ahead in the short-term and that we should continue to err on the short side of stocks. This post will outline some of the evidence we're seeing supporting this thesis, as well as adding a number of short ideas to our trade list from October and November.
Over the years I've been asked this question a lot: "What do I do? Should I sell now?"
This is often accompanied by a story about how they bought a stock or asset and it went down in price instead of up. The blame usually goes to a financial advisor or local friend who gave them "the tip". They entered into the position without a plan and now they don't know what to do with their unrealized losses.
During our family's feast this year I'll be reflecting on my gratitude to each and every one of our subscribers, and to my team here at All Star Charts. I could not ask for a more engaged audience and a more top-notch group of analysts to work with. This year marks the maiden voyage of the All Star Options corner of the All Star Charts platform and the response from institutional and retail subscribers has exceeded my expectations and it makes me ever more motivated to continue crushing it for years to come for all of you.
Sincerely, thank you.
Now let's talk business...
This week we put an options spread trade on in Goldman Sachs $GS and it serves as a vivid reminder that we're not looking for perfection here. We're looking to follow a process.
