It's been a while since I laid out a bunch of short ideas. As you guys know, I've been really bullish since late January. But hey, upside targets get hit, sentiment shifts, and things eventually change. Here are a list of Dow Components that I think are good shorting opportunities today:
The financial sector of the S&P 500 has been a major laggard over the last few years and 2016 is no exception with the sector down roughly 6% YTD.
The five year daily ratio chart of XLF / SPY represents this relationship. This ratio broke down out of a multi-year downtrend channel while momentum confirmed a bearish range by moving into oversold territory. These conditions, combined with the presence of a downward sloping 200 day moving average, suggest that the under-performance of financials relative to the broader market is likely to continue.
We've just witnessed one of the most epic rallies in the stock market that we've seen in a long time. Remember, this has been dominated by global indexes, particularly Emerging Markets, not U.S. Stocks. We could not be happier to see this rally progress so well as we've been pounding the table to be long since late January. By mid-February, the U.S. and other developed markets put in their bottoms and started to play catch up to the rest of the world. But the underperformance of the U.S. has continued anyway.
Today's Chart Of The Week represents what could potentially be the start of a major structural improvement for U.S. Stocks:
Polarity is where it all begins, guys. This is supply and demand 101. We talk about momentum and we talk about trends. We use words like Fibonacci, Divergence and Moving Average. This is all fine and dandy, but all of these are only a supplement to actual price analysis. Price is the only thing that pays. So price, by definition, is the most important technical indicator that exists.
Today we are going to discuss the Principle of Polarity. In order to do so, we first need to define support and resistance:
This morning I was on the Benzinga pre-market radio show, where I am invited to come on as a guest every other week. So basically twice a month a rap with the boys about the direction of the Stock Market, both U.S. and globally, Interest Rates & Bonds, and more recently the agricultural commodities.
We've been pretty neutral the majority of the U.S. Stock Market indexes over the past couple of weeks since they first starting hitting our upside targets. Some of them, like the Nasdaq100 and Mid-cap400 had yet to reach out upside objectives, but we are approaching those now. I will argue, though, that the developments we've seen are constructive, both in price behavior and in the breadth itself.
Here is what I think we need to keep in mind with each of the major Indexes. We're using only bar charts today in order to put extra emphasis on price for this particular exercise:
From late January until today, there have been tactical breakouts in currencies of countries with significant commodity exposure relative to the US Dollar. This has provided a tailwind to a number of emerging market equities that have subsequently followed through to the upside. Many of these equity markets are concentrated in Latin America, but areas like South Africa, Africa, Australia, and Turkey have benefited as well.
Whether or not these tactical moves will continue and develop into long-term trends is entirely unknown, but the risk/reward in the US Dollar/Brazilian Real looks particularly skewed in favor of the bears here.
Over the past few days I've received a number of requests from members asking me to post a the updated charts on my favorite U.S .Stock Market short right now. In last week's letter I mentioned how Utilities were not a place we wanted to be long and there were a few ways to take advantage of the individual components of the sector.
Today I want to dive into those individual charts:
Over the past few weeks there have been some interesting developments in Agriculture commodities, and Soybean Oil is no exception.
Before we get into the price action, I think it's worth noting that we're in the middle of a seasonally strong period for Soybeans, while hedger positioning and public sentiment are coming off multi-year extremes. These should both continue to provide a tailwind for prices of Soybean related markets in the weeks and months ahead.
I look at a few hundred charts per day across multiple timeframes, and thousands each weekend, but I very rarely find an idea that's actionable at that particular moment. This begs the question of why I look at so many charts if they rarely lead to actually putting on a trade, to which the answer brings us to the title of this post.
When utilizing a top-down approach to technical analysis, every liquid global asset class provides some type of information that's useful, even if you don't trade that asset class directly. Instead, each new piece of data adds to the pool of information that we as market participants use to make decisions. When the weight of evidence suggests a more probable outcome, that is when it's appropriate to put on a trade that expresses that theme or thesis in the most capital-efficient way possible.
