For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. It can even be inverted or a custom index.
The point here is to not guess what it is, but instead think about what you would do right now.Buy,Sell, or Do Nothing?
We hear this term a lot: "Overhead Supply". But what does that mean exactly?
Well, I'll tell you what it means to me. When I look at today's stock market, I see stocks rallying throughout 2017 and running into resistance, or more selling than buying, in January of 2018. After some distribution, stocks rallied once again late into the 3rd quarter last year, only fail and sell off. That was a beautiful sell-off in stocks that many of us enjoyed very much.
Fast forward to 2019 and we've had a killer rally in stocks that has brought us back to where this overhead supply party first got started early last year. This is now the 3rd attempt and failure for stocks. And when I say stocks, I don't just mean the S&P500 or Dow Jones Industrial Average, I'm referring to stocks as an asset class.
Stocks have lost firm footing in recent weeks. And while things may look a little sloppy out there in some corners, it is a constructive exercise to focus our attention on the sectors and stocks that are holding up well in this tape.
An iconic American credit card company is exhibiting a take charge attitude that has me interested in running up my balance.
People love to hear a good story. We have an evolutionary desire to gossip and be told stories even if we know they're untrue. As Sapiens, it's important to know this about ourselves. But you know who definitely knows it? The media. And they're going to use that desire against you every single day for their own profit. They will tell you stories all day every day as long as you're willing to listen. They're so thirsty for your attention that they'll tell you anything just so they can sell ads to their precious sponsors. It's their job to make the noise. It's our job to ignore it.
Today, I'm going to show you the chart that actually tells the real story about what is going on in today's market. I comb through thousands of charts a week and I can tell you for a fact that there is one underlying theme that I'm seeing across the board: Stocks, Sectors and Indexes, and that is the Overhead supply we've been stuck below since early last year.
As US stocks rallied for most of this year, many stocks in the Metals, Mining, Coal, and Steel sectors could not get out of their own way and refused to participate in the broad rally. Back in March, All Star Charts published a report highlighting this. So naturally, as stocks begin to soften across the board, it's time to lean into these bad boys and push them off a cliff.
In early June I'm coming to Europe to talk charts, meet with clients and try to learn as much as I can. I've been incredibly fortunate over the years to be able to speak at events and meet with investors all over Asia and around America. My trips to India, Japan, Singapore, Hong Kong, Taiwan, Malaysia and the Philippines have been great experiences that help me throughout my process every single day. Learning and experiencing as much as I can has easily been the most rewarding investment I've ever made.
My goal on this trip is to finally get to meet with people I've been interacting with regularly for many years, catch up with old friends who live there that I only get to see in the States, and getting new perspective from local clients and colleagues. That's the whole point. If you only hang out with people from New York, or the U.S. for that matter, you're only seeing things from that same lens. I want to know how other people look at things. That's how we grow.
Every few weeks I get a message from someone asking a question along the lines of "Should I enroll in the CMT Program?" As with most things, the answer is it depends on your individual situation.
While I can't offer personalized advice to everyone, I can discuss my experience and the key benefits now that I've completed the process.
This post is going to be split into two parts; one where I explain my answer to the question that prompted this post, and the other where I summarize my actual experience in the program.
Wednesday's Mystery Chart is one of my favorite right now, so thank you everyone for your feedback and participation.
I received a lot of answers, but most of you were skeptical of the breakout and wanted to see more before getting involved. A few others wanted to be long with a tight stop and few, if any, were sellers.
With that as our backdrop, let's get into it.
The actual chart was the ratio of the Insurance subsector ($IAK) relative to the S&P 500, which is breaking out to 11-month highs as momentum gets overbought for the first time in nearly 2 years.
To me this looks like a textbook trend reversal, so while there may be some backing and filling over the near-term, Insurance stocks look set to outperform over the intermediate/long-term.
