Every month I host a conference call for All Star Charts India Premium Members where we discuss ongoing themes throughout the India Share Market. We take a look at all of the NSE Indexes and Sectors as well as some of our own custom indexes. At Allstarcharts we have become known around the world for the top/down approach to stocks. After we analyze each of the indexes and sectors and have identified where the strength and weakness lies, then we break it down to individual stock opportunities. By having momentum, relative strength and market trend in our favor, the probabilities of success increase dramatically.
I don't like how many oversold conditions have been hit in the major indexes and most sectors. I've tried my best to point out the stocks showing both relative strength and momentum. But there are an awful lot of charts I see where oversold conditions in momentum is a problem. So the question becomes, is a retest of the lows necessary for stocks to continue higher?
The market is never going to give us what we want. We have to take what the market gives us. Play the hand we're given, not the hand we wish we had. What worked in one market environment is not going to work in another. That's why all those filters fail so frequently, because you're trying to take something from the market instead of taking what it is giving us.
This week, a spike in volatility caused forced selling in stock index vehicles that trickled down to ETFs and individual stocks. We did not see any stress, however, in credit markets, currencies or any of the commodities like Crude Oil or Gold. This is further evidence that we want to continue be buyers of weakness, like we have been throughout all of last year and most of 2016. There will be periods where we want to be sellers of strength, but I don't believe that is the correct approach today.
I thought this would be a good time to share some of my thoughts on position sizing. I've noticed this week many people who never mentioned a futures contract are now opining on the futures market at all hours of the night. I know what that feels like. I've been there. 2008 was an amazing experience for me. It's not the lifestyle that I want to live. Sleeping at night is healthy. If my positions are too big, I'm not sleeping.
To me, the key to avoiding bad decisions is to keep stress and emotional levels low. It's hard to do that when there is too much money involved for you to handle responsibly. So we want to identify how much is too much. It's not an easy answer and most likely something you'll learn over time. When you get that feeling like you've just been punched in the stomach, you're probably too big. You'll know it when you feel it. Most of us have been there, multiple times.
If you've been following along, I try and go out of my way to discuss risk management techniques, tools and signals when the market gives them to us. Whenever I lay out a thesis, I like to talk about what the market should look like in the case that we are correct, while at the same time outlining what the environment would look like if we are wrong. The idea is to picture both scenarios and as the data comes in, try to identify which outcome we're in as quickly as possible.
It's not a secret that Emerging Markets were the big loser for a long time. Since peaking during the 2010-2011 time period, the underformance of anything EM, Mining and Natural Resources has been clear to all of us. Gold was a terrible investment, mining stocks, stocks in mining countries and others in that area had been the worst place to put your money for many years. Although still not in a full fledged parabolic rise, we've seen what appears like a healthy completion of a massive base.
To me, this is suggesting that the outperformance we've been seeing out of Emerging Markets is just getting started. The initial burst from early 2016 was more of a beta trade. This is when stocks as an asset class bottomed and the worst of the worst, emerging markets in this case, outperformed because of their higher volatility nature and the simple fact that, the harder the pounce, the more violent the bounce. We've gone nowhere the past 15 months since that initial thrust of the lows. Until now.
The bond market is the biggest market in the world. Hello?
It's easy to get caught up in the daily noise about some crypto currency or a biotech stock. But these are tiny tiny tiny itsy bitsy little markets. The bond market is a real market, with actual money in it and driven by the largest financial institutions and governments all over the world. If you want real information, the bond market is where to get it.
My friend Larry McDonald, a former Lehman Brothers Bond Trader, was on a recent podcast episode of Technical Analysis Radio talking about exactly this. I encourage you to give it a listen, it's not long.
Say what you want about rubber and tyres, but they seem to be a great business. I have a stock today that I wanted to share with you that I think does well moving forward, but also outperforms the rest of the auto industry.
Chart Summit 2018 is in the books. What another great day of thought out presentations filled with both educational and timely actionable material. We try to make it a point here not to live life in theory, but in reality. I go to too many conferences where all the discussions are purely academic and theoretical. Listen, I understand that this sort of material is 'evergreen' and can be watched for a long time afterwards. Sure, and I like some of that too, don't get me wrong. But we're here in the market to make money. So we want to see you put your tools to work in the current market environment. What are we buying and what are we selling? Let's make sure to talk about what's most important!
This year I invited a group of presenters that I thought each brought a different perspective on the markets. Last year I tried to do something similar, but the 2018 Chart Summit was unique in many ways. Once again, we were broadcasting live from the internet on a Saturday so our audience was all over the world in the comfort of their own houses, flats and dorm rooms. The diversity of attendees was one for the record books, in terms of age, sex, location and occupation.
It's amazing how many people in this world completely ignore monthly charts. I never understood it. It's an exercise that only needs to be done once a month. It's not like eating healthy or working out that you have to do it consistently for it to work. This is 30 minutes per month! 30 minutes! 12 times a year. That's 6 hours of work that will be the most important and productive 6 hours of the entire year. Even if you have a short-term time horizon, all of these shorter-term trends come within the context of a much larger structural picture.
