As homo sapiens we're hard wired to feel the need to gossip. This goes back hundreds of thousands of years throughout evolution. We still see it today and through the speed of communication technology, that gossip gets amplified. While some would argue the issues of today's society are unique, anyone who studies history knows that none of what we're seeing today is new.
It's our job as investors to be aware of this cognitive behavior flaw and work on avoiding the potentially disastrous implications of allowing our evolutionary gossip habits to enter into our portfolio decision making process. I've seen some amazing technicians and traders let their political opinions get in the way of their "process" and watched their horrible downfall. It's been heart wrenching to watch, but the lessons learned by witnessing their collapse is something that will stay with me forever.
The current political and economic environment is unique in it's own way, but they always are. Rather than focusing on the noise, I've found it extremely valuable to pay attention to the only thing that actually pays us: price.
Stocks in India are going up, on both an absolute and relative basis. Let's not forget that. So it's our job to isolate the ones with the most favorable risk vs reward scenarios. The idea is to risk the least amount in the case that we're wrong, but be able to profit the most when we're right. This week I put together a list of the stocks with attractive setups in the NIFTY50 Index. Today we're focusing on the NIFTY Next 50, which are the remaining stocks in the NIFTY100.
I look at facts. There are many people who choose a variety of other factors that aren't necessarily true. Market participants all over the world look at economic data (which are estimates), statements from CEOs of companies (do you trust them all? if not, which ones and why?), analysts ratings (are opinions) and an infinite of other metrics that have no history of being fact. Price, on the other hand, is the only truth we can be confident in believing. I'm selfish, if I can't trust that my data is correct, how could I possibly trust the outcome?
As we enter the second quarter I would say there are mixed signals coming from different markets. My conclusion is that there are more positives than negatives. One in particular that stands out is the strength in Indian Banks. A few of them are pushing up against new highs and both the relative strength and positive momentum in such an important sector can't be ignored. Also, we're seeing strength around the world in Emerging Markets, India included. I think we're finally seeing the rotation back into India on a relative basis.
Today we're going over some of the more favorable risk vs reward opportunities within the NIFTY50 Stocks:
You often hear people call it, "Dr. Copper". They say the metal has a Ph.D. in economics because of its ability to predict turning points in the global economy. I'm not sure about all that, but I do see a strong correlation between it and Emerging Market stocks. Today we're taking a look at these two assets and why Copper's next move is likely to coincide with the direction of Emerging Market stocks.
Jon Najarian has been trading options since the early 80s when he first entered the Chicago pits. I've always had an appreciation for the way Jon looks at the behavior of market participants through the options market, particularly the largest institutional players. By monitoring the volume size of these trades, he pays close attention to what the biggest participants are doing, often times trading alongside the "smart money". I think his perspective on this specific area of the market adds a ton of value to our conversations about Technical Analysis. In this episode, we discuss the new higher volatility regime in U.S.
When I get asked about what I think the most important technical indicators are, I have to start with price. This is where it all begins and ends. Everything else is just a derivative of price. Let's not forget that. We can use all sorts of other things to help supplement that price analysis, but only if we understand that is all they are, supplements.
After price, for me it's momentum and relative strength that we're looking for. We want to be in stocks outperforming other stocks and showing positive momentum. Why mess around with stocks showing weakness and not showing bullish momentum? That makes little sense. Today we are going to focus on the areas showing the most relative strength and momentum, how to profit from it, and what that means for the overall market.
It's funny, some friends of mine a few weeks ago were asking me about Island Reversals. Apparently they were arguing about whether a breakout in some stock was sparked by an island reversal or not. I came to the conclusion that they were both wrong, but I appreciated their interest in this rare pattern. The point I tried to make to them was that it wasn't so much about what it's called, but more about its implications. And they had the implications right, which is all that mattered.
I don't see too many of these things, but this week we got a classic example of the ever so elusive "Island Reversal".
Here at Allstarcharts, none of us know what is going to happen in the market next week or next month or even next year. But the good news is that no one else does either. So it's an even playing field among all of us, whether you're Warren Buffett, Joey Home Gamer or anything in between. All we can do is take the data as it comes in, consistently reevaluate, and position ourselves in the direction with the highest probabilities.
Today we are taking a look at just the U.S. Stock Market Indexes to see where the risk lies and what we want to see to position ourselves aggressively on the long side.
When assets are in strong uptrends, they're not just going up in value on an absolute basis, they also outperform their alternatives. Two obvious alternatives to investing your money in Gold are Stocks and Bonds. With the price of Gold flirting with new multi-year highs, we want to see how it's behaving vs the other asset classes.
It's hard to ignore the strength we're seeing in some of these emerging markets. When stocks are selling off, I like to look around and see who is still holding up well. We call that "relative strength". Every day I get to speak with traders at the largest financial institutions in the world. They laugh because when everyone is selling, they get to sit there pressing buy buttons and fill their humongous orders that need to get done while they are accumulating a position.
Remember that institutions who manage $10, $20 - $50 Billion have to buy millions of shares of a stock just to have a small position relative to the overall size of their giant portfolios. It takes time to fill an order: days, weeks or even months. Retail investors can just press one button and get an entire fill whenever they want. Since institutions can't, we get to see it happening if we look close enough. When stocks are selling off, those still staying green and holding up is evidence of buy side accumulation.
