The bounce in US stocks continues off the Christmas Eve low, but it is showing signs of short-term exhaustion. Does this mean we go right back to lows? Not necessarily. I'm in the camp that some sideways chop would be constructive for the markets overall. As such, I'm in the mode of looking for smart delta neutral trading plans.
Yesterday I discussed how we use ratio charts to identify trends for both trading opportunities and information that we can use to make inferences about the stock market's next major move. Today I want to look at an inter-market relationship between Base Metals and Precious Metals that may help provide information about where interest rates are headed.
The S&P 500 has rallied more than 10% off its late December lows, making the reward/risk on the long side a lot less favorable as many of the major indexes and sectors approach overhead supply. When the market is at a point on an absolute basis where the weight of the evidence is mixed, the use of ratio charts to identify the trends that are happening under the surface becomes even more valuable.
Let's get something straight: being a market participant is not a right, it is a privilege. You have a responsibility to yourself, or your clients, to manage risk appropriately. Our goal is to profit while systematically having protection in place to adjust risk according to the environment. Not only is it not easy, the smartest minds in human history have failed in their attempts to profit from the market. See: The Market Owes You Nothing
A long time ago Mike Bellafiore, from SMB Capital, engraved in my mind that we need to be grateful for the opportunity to participate in the market. This isn't a right. We need to be humble and know that Mr. Market is here to take it all away at any given moment. The worst trade of your life could be the next one if you're not careful.
These are the registration details for the monthly conference call held for Premium Members of All Star Charts. In this call we will discuss the global market environment and how to profit from it. As always, this will include Stocks, Interest Rates, Commodities and Currencies. The video of the call will be archived in the members section to re-watch any time and the PDF of the charts will be made available as well.
This month’s Conference Call will be held on Tuesday January 15th at 7PM ET. Here are the details for the call:
The debate seems to be raging between Bulls and Bears as to what's happening right now. The Bulls are declaring THE bottom is in and we're going up from here. The Bears are smugly observing what they think is just another dead cat bounce on our way to lower prices. Who's right?
What if they are both wrong?
Ms. Market loves to frustrate the largest amount of participants she can, as often as she can. And it seems to me the best way to frustrate the most people right now would be for U.S. stocks to tighten up and grind sideways for a little while. With that in mind, we have a nice ETF candidate to sell some delta neutral premium in while the next market direction sorts itself out.
In the final Chart of the Week for 2018, we looked at the US Dollar reaching a key upside objective and then rolling over to finish the year on a sour note. I started out my Q1 2019 Playbook emphasizing the importance of the US Dollar Index in 2019 and I think we're already seeing the implications of a weaker Dollar. I also think this trend is likely to remain in place.
The way we saw it, if the US Dollar were to just break through these levels, without even acknowledging it, then there is most likely a severe flight to safety away from stocks and that's why the Dollar is getting bid up. The counter-argument there is that if the Dollar is weakening, stocks would most likely do well in that environment. That has been our thesis coming into the year.
So far, the Christmas Eve low in U.S. stocks is holding. Boy, wouldn't that have a nice ring to it if it sticks and stocks eventually return to new all time highs? I'm not saying it will, but that sure would be interesting.
In the past week, stocks across the board firmed up. But I'm not one to put too much weigh on the first partial week of trading activity to ring in the New Year. I think this coming week will give us a better indication of where the path of least resistance is.
So while I'm not yet convinced it is safe to buy here in the U.S., there is some tempting mean reversion happening in Latin America that has us interested.
In this post I want to highlight some of the most interesting and/or actionable relative-performance charts from our Global ETF Universe. Whether you're interested in actionable pair trades or simply looking for information about where money is flowing in the world, these charts should provide some good perspective on where various markets stand at the start of 2019.
The Public Sector Bank Sector of the Indian Stock Market has struggled since late 2017, however, there are signs that many of these stocks are in the process of changing long-term trend.
However, in this post we're focused on the current mean reversion we're seeing in stocks around the globe and how to profit from it. We'll worry about later this year later this year.
