Every weekend we publish performance tables for a variety of different asset classes and categories along with commentary on each.
This week’s main theme is risk-on action from beaten-down areas which we'll highlight in our US Index and Factor ETF tables, below.
We're putting a lot of emphasis on risk-appetite measures right now in order to provide insight into how the recent rangebound activity in Equity and Bond markets is likely to resolve itself.
The most basic way to assess risk-tolerance is to compare the performance of risk-on vs risk-off assets. As such, this post will focus on how the offensive vs defensive areas of various markets are acting right now.
We've been using our "Five Bull Market Barometers" to measure the long-term health of the market and remain in the camp that risk in Equities remains elevated.
In this post, we're going to outline several charts we think will set the tone for the broader market through the rest of the quarter.
First, and most importantly, is the Nifty Bank Index which made new relative lows this week. On an absolute basis, prices are nearing their March lows of 16,100 after failing to reclaim their 2015-2016 highs in April.
Click on chart to enlarge view.
What we're watching is how prices react to those March lows. Is there any meaningful demand at that level? or does the trap door open and we see a quick move towards 13,500?
Why does Technical Analysis work? Because markets trend. No one can argue that. I don't care who you are. And what do we do as technicians? We look for trends!
I was recently a guest on the Trends With Benefits show. It's the perfect name for a podcast about the stock market, especially when you invite someone like myself, who is constantly looking to benefit from underlying trends in the market.
Lots of charts are being shared showing the exponential growth in trading activity, new accounts, and anything else that might paint a story of euphoria at retail and discount brokerages since the pandemic broke out.
Here is some personal background only to provide context for what I’m about to discuss.
I live on an island. It is tiny, about 4 square miles. In fact, I live on an obscure island just above Key West which is technically much smaller than that. As a “Census Designated Place” it’s really just a collection of roads and canals, a village of about 4,400 people.
It’s nice, but it comes at the cost of an economy that relies almost entirely on Tourism. The people who live here are more or less fishermen or workers at the many hotels, bars, and restaurants in what’s generally a booming downtown area. Since shutting down our borders months ago, the local unemployment rate has spiked to an estimated 50%.
Earlier this month we outlined the "Five Bull Market Barometers" we're watching to identify the beginning of a new bull market in stocks.
In this post, we'll update those charts without going into as much detail as to why they're important. So if you haven't read our initial post linked above, we'd encourage you to check it out.
With that said, let's jump in and see how these charts have developed since.
While we don't know whether or not this can persist indefinitely or if these divergences will soon resolve themselves, we do know that Semiconductors remain one of the secular leaders and are thus an area we want to continue to bet on from the long side.
In this post, we'll outline some Trade Ideas in our favorite Semiconductor names.
Something all of these setups have in common is that they are exhibiting impressive relative strength vs the broader market. They also all resolved to fresh highs recently, which gives us a well-defined risk management level to trade against.
Ok, I have to be honest here. I'm not incredibly bullish at these prices. As much as I try to divorce myself from the news cycle and the fundamentals, its hard to think NOW is the time to get long.
That said, only price pays, and charts and declining volatility in many stocks is telling different stories.
The beautiful thing is I can express bullish trades with options and clearly define my risk. Here's one that looks like a good risk reward:
Thanks to everyone who participated in this week's Mystery Chart, as always. Most saw that I was doing it this week and didn't even bother to try guessing, simply stating that they were buyers of this massive base breakout on any pullbacks.
Yesterday in our Monthly Conference Call we discussed relative strength in detail and how we're using it to identify opportunities in the current market environment.
Today we wrote a detailed post expanding on our thought process, which we'd highly encourage you to read before continuing with this post.
In this post, we're going to outline several market-neutral trades we think are actionable today.
During Tuesday's Members-Only Conference Call we discussed not wanting to be aggressively long or short stocks on an absolute basis. Our Five Bull Market Barometers continue to suggest this is a choppy, messy environment where we need to be very selective when putting capital to work. Cash/patience and uncorrelated trades like Gold continue to work for those who have the ability to stay out of the equity market.
Not everyone has that luxury though. Many fund managers have a mandate to be long stocks regardless of the market environment. Some may have the ability to short stocks against their exposure, but many are "long-only" and need to outperform in weak markets by owning the stocks that are going down less.
Yesterday in our Monthly Conference Call we discussed our preference for market-neutral and uncorrelated trades given the choppy environment that continues for stocks on an absolute basis.
With that said, today we're taking a look at a stock with clearly defined risk and a heavily skewed reward/risk on the long side.
JC summed up our present view on US Equities perfectly during this week's Conference Call:
"There are stocks we want to buy, and there are stocks we want to sell," he told Premium Members on Monday night.
Some areas, particularly the secular leaders coming into the selloff, continue to trend aggressively higher while others refuse to participate in any meaningful upside.
A great example of this is illustrated by contrasting the chart of the Dow Jones Transports (DJT) to what we consider the "New Dow Theory" Average, the PHLX Semiconductor Index (SOX).
