Most of you who know me already know that I incorporate a top/down, weight-of-the-evidence approach. It's not just 1 chart or 1 indicator that says to be long or short the stock market. It doesn't work that way. For me, I put in the work, weigh ALL of the evidence, and then put together a thesis. From there we then look to execute. Since March, however, a more neutral approach towards stocks has been my big theme. As we come into May, I see no evidence that suggests changing that strategy. Cash heavy still makes sense until the data changes and points to allocating that cash once again, long or short.
Today I want to go over a chart that I think the US Stock Market bulls are going to love. To me, it is potentially the most bullish chart in the entire world.
Register here for our live monthly conference call for Premium Members of All Star Charts India.
May's Strategy Session will be held on Tuesday, May 4th at 7 PM IST. As always, if you cannot make the call live, the video and slides will be archived and published here along with all of our past conference calls.
Yesterday I kept a Diary throughout my entire process of reviewing the components of the S&P500. Many of you have written back with such nice things about that. I'm glad you enjoyed it. I think that in order to get the most out the research, it really helps to understand where I'm coming. This helps in the execution process, which is why we're here right? To make money in the market for ourselves and/or for our clients.
Today I felt that a nice supplement to yesterday's S&P500 work is a chart that shows what the S&P500 Equally weighted Index is doing relative to the S&P500 Market-cap weighted index. To me this is a good measure of whether or not we're seeing broad-based participation or if it's just the mega-cap names carrying the weight.
I get asked all the time about my process. A big question is usually around how did I find that chart in such a "random" country or asset, like an ETF on South Korea or a futures chart like Soybeans. To some people these might be assets that are not on their radar, but they are just as easy to trade as Apple shares or Crude Oil, that obviously get much more attention. My answer is simply that I look at all of them and just bring out some of my favorites. This is habit that I got into many years ago, so for me it's second nature.
Next week I'll be flying into Chicago for a couple of days. I've been asked to speak at the University of Chicago School of Financial Mathematics as well as the Chicago Board of Trade (CBOT). The appetite for learning about Technical Analysis that I am finding all over the world is incredible. When I was invited to present at both of these prestigious institutions, Univ of Chicago & CBOT, I jumped at the opportunity. I love Chicago and have friends and some business to take care of there anyway so it works out great. My only catch was that the Cubs had to be in town. They made it happen and I'll be there next week!
We've been able to avoid some short-term messy sort of action lately. We'll take it. The breadth internals of the market had been suggesting since early March that something was wrong. The major indexes breaking uptrend lines further emphasized those characteristics of distribution. Momentum putting in bearish divergences at the highs from Q4 and Q1 this year also pointed to more neutral positioning towards equities. Most of our upside targets had also been achieved by early March and that was difficult to ignore. It's a weight-of-the-evidence approach for me, there's no question.
Today we're going to make the bullish case for US Stocks. Not that I think we rip higher every day from here and we need to buy everything in sight, but I do think it's worth paying attention to the developments from early this week. I also want to pinpoint exactly what we want to see moving forward before getting full on aggressive towards US Stocks as we did in July last year and in late January before that.
The US Stock Market has been like watching grass grow. It's a hot mess and I'm all for it. We turned Neutral towards US Stocks in March so watching both the bulls and the bears get whipped around is great theater from our cash heavy seats. Nothing I've seen in the past couple of weeks has changed my opinion on this environment. To the contrary, everything continues to suggest having huge cash positions and not trying to be too aggressive - long or short. Cash is king sometimes and neutral is a position too, don't forget that.
Many of us have the ability to invest in other markets. For the few of you who cannot, I still think it's a good learning experience and a valuable academic exercise to explore other markets. You might not be trading (or allowed to trade) foreign markets today, but I promise you that one day in the near future, buying stocks in India will be as seamless as buying Microsoft or Apple. For most of us, it already is. The world is getting smaller, not bigger.
Every month I host a conference call for All Star Charts Premium Members where we discuss ongoing themes throughout the global marketplace as well as changes in trends where new positions would be most appropriate. This includes U.S. Stocks & Sectors, International Stock Indexes, Commodities, Currencies and Interest Rate Markets.
We've been implementing a much more neutral approach towards equities and even most commodities over the past month. This strategy has worked well as many stocks, sectors and countries continue to be a mess. There are times to step on the gas and really push it, like last summer for example. But other times, it's best to sit tight and wait for things to set up in the direction of a trend. A sideways mess is no fun for anyone. That's what we're in right now.
I'll do my best to lay out my weight of the evidence conclusions and walk you step by step with how I got there! It will be held on Tuesday April 18th at 7PM ET. Here are the Registration Details:
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 Wednesday, April 21st at 7 PM 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.
