During our monthly All Star Options conference call for members, JC & I laid out our bullish case for Berkshire Hathaway. These days, in spite of the diversity of industries that fall under the Berkshire umbrella, the tracking stock $BRK/B trades much like a financial.
Additionally, Berkshire exhibits high correlation to the S&P 500, and with the rotation we're seeing into financials it makes sense to be long $BRK/B while we're still incredibly bullish on the overall market. And of course, the technicals we're watching all point to higher prices.
This weekend all of the Chartbooks on the site were updated, so this is a quick post to highlight some of the significant developments since they were last updated. In our last update summary we discussed the fresh breakouts in Financial Services, Consumer Goods, and IT, as well as the continued strength in large-caps relative to mid and small-caps. Today we're going to check in on those themes and also highlight some new ones.
It's not about being right, it's about making money. There's a difference and I think that gets forgotten too often. We want to position ourselves where we have the highest probabilities for success as well as where the risk vs reward is skewed in our favor. The goal is not to be right every time. The goal is to be profitable. That's why we're always thinking worst case scenario: always a risk level and always a target.
Today I want to focus in on what we're seeing in the S&P500 because I think that from a risk management standpoint, this 2780-2800 level is a big one today from a structural perspective. Until now, we've used 7000 in the Nasdaq100 and 2650 in the S&P500 as our lines in the sand. We've only wanted to be long if we were above those levels and that has worked out very well. Moving forward, I've identified some higher levels that we need to monitor.
As part of our ongoing partnership with Investor's Business Daily we have added all of the IBD50 components to our equity research coverage. We are updating our Chartbook on a weekly basis and members of Allstarcharts have access to that workbook here.
Today, I wanted to discuss what we're seeing from this group to identify the overall trend for U.S. stocks and also to find trading ideas to profit from that directional move.
This index is made up of stocks showing both relative strength and positive momentum, in addition to other factors that play a role in adding or removing components from the list of 50. What attracts me to this group, however, is the relative strength and positive momentum, just to be clear.
This is the Innovator IBD50 ETF $FFTY which to me, is still in an uptrend. We want to continue to err on the bullish side of this ETF and the group as a whole:
I know the US Dollar isn't as sexy as Tesla's Elon Musk tweeting market moving information every few hours or Apple hitting a trillion dollar market-cap, but I have been waiting all summer for a resolution of this range in the Dollar Index and it looks like we might be finally getting it. Whether this move is successful and the Dollar continues higher, or it's a failed breakout that sends the Euro ripping, there will be significant cross-asset implications that are worth thinking about as this move develops.
Eight months of sideways consolidation and an upcoming earnings event next week are setting the table for the potential of significant upside in shares of Nvidia $NVDA.
The semiconductor space is a leading indicator for the technology sector which has been outperforming in both an absolute sense as well as relative to the rest of the stock market. We view $NVDA as a leader among semiconductor stocks and it is only natural that this name should resume it's trek higher with the market, which we're still incredibly bullish on.
We're going to make a bet that next week's earnings is the catalyst to get $NVDA moving again.
If you've been reading our blog for a while, you're probably familiar with our process and how we identify reward/risk scenarios that are ridiculously skewed in our favor. With that said, the way we accomplish that doesn't always look exactly the same. Sometimes we're buying breakouts and trading with the trend, other times we're trading against the trend for mean reversion, and other times it's some combination of strategies.
I'm so excited to announce that I've started a new podcast with my friend Phil Pearlman! We're calling it "The Money Game" and we'll have a new episode out each week. For you guys who are unfamiliar with Phil, he earned a doctorate in clinical psychology and has always been the person I turn to when I have questions about human emotions and cognitive behavior. As a technical analyst, what I'm doing is analyzing the behavior of the market and market participants. So understanding who we are and why we act the way we do is part of that process.
Phil and I used to do weekly youtube videos back in 2013 that he would call "Weekends With Allstarcharts". Fast forward 5 years later, and with the power of technology, we're bringing it back as a podcast.
There are many different ways to gauge the strength of the stock market. One of the most valuable is in the Russell3000, which represents approximately 98% of all investable assets in the U.S. equities market. This week, the value of that index was able to surpass its former high value from January. This comes after the Russell Small-cap Index and Russell-Micro-cap Index had already broken out in May.
The thesis here is that we're just now starting a new leg higher for U.S. stocks. The Russell3000 Index is in a similar situation today as Technology was earlier this year. The risk was very well-defined and the upside was exponentially greater. The market implications were also incredibly important. The Tech stock charts at the time suggested buying them all year and that has, in turn, given us greater confidence in being long the market overall. This Russell3000 situation today is the same in a lot of ways.
On Thursday August 23rd I will be putting on a presentation at the Toronto CFA Society at 4:15PM. This is a free event where I will be discussing the current market environment, walking through strategy and talking about how we find individual investing ideas. We will also save time for Q&A at the end because I really enjoy the back and forth. We'll find a local bar afterwards and continue the conversation.
This event is free for everyone but I'm told that space is limited so lock in your seat right away! Here are the registration details:
Life isn't just about Tesla gossip and Apple at a trillion. There is plenty of "less sexy" market behavior to be paying attention to right now that should have serious implications for the overall market. While boring to some, we have a huge amount of respect for Berkshire Hathaway stock. The breakout we got this week is likely to be the beginning of a 25% move higher which should take this one close to a $700B market cap and we want to be buying!
