There is a reason we look at the stock market from a global perspective. It's because we invest in a global market. Stocks in America weren't going up the past couple of years because of what was happening in DC or New York. Stocks in the U.S. were going up because stocks all over the world were going up.
That changed earlier this year. While U.S. stocks keep making new highs through the Summer, global markets were not participating.
The question was simple: Were we going to get rotation back into Emerging Markets, Europe and other under performing areas around the world? Or was the U.S. just the last man standing and would catch down to the rest of the world. It's clearly been the latter as stocks have come off significantly this Fall.
For clues about what we should expect in U.S. stocks, I think it's important to continue to value the data coming in from global indexes.
Some stocks are going up and most stocks are going down. That's been the trend over the past 10 weeks or so. There is nothing out of the ordinary about that and cash heavy positions have helped us tremendously during this period.
As far as the indexes themselves are concerned, I think it's obvious that they're a mess. You've heard me say it a thousand times, "If you trade the averages you'll get average returns". It's something I learned the hard way a long time ago. Focusing on individual stocks, both long and short in this environment continues to make the most sense based on the weight-of-the-evidence.
First we'll look at the stocks that remain weak. We want to keep selling those if they're below key levels. From the long side, it's hard to ignore some of the relative strength out there. If the market catches a bid, those are likely to be the ones that lead us higher.
I'm not going to sugar coat it. There are numerous stocks and sectors that are hanging on the precipice that look like a small push could send their shares tumbling into a deep abyss. The Regional Banking Sector is one of these sectors. A quick scan across the landscape reveals a tornado of broken charts. And as one would expect, volatility is elevated across the board here and offers great edge to net options sellers.
A retail stock which earlier this year showed tremendous promise breaking out of a FIFTEEN YEAR base has faltered. And any regular reader of All Star Charts knows we're fans of the, "from failed moves come fast moves" phenomenon. In short, if a stock breaks out of an obvious pattern, sucks everyone in, then can't hold its breakout and reverses? Well, oftentimes the moves in the opposite direction can be doubly vicious.
The stock we've identified has reversed hard off all-time highs over the past four weeks, but it looks like the bad news may only be getting started. Friday's close left the stock's chart hanging on a precipice. We're thinking we'd like to give it a little nudge and see how hard it will fall.
Two weeks ago we wrote that the weight of the evidence was suggesting the major indexes in India were getting ready to resume lower. While we were a few days early, most have resolved their consolidations lower. So the question now is, will they continue lower or will they be able to base and head higher? That's the question we're looking to answer in this post.
First let's start with the weakest area of the market, small-caps. Prices were consolidating for about a month in a super tight range, but are now resolving to the downside to continue their long-term downtrend.
Click on chart to enlarge view.
Mid-caps look equally as bad. Nothing in this chart suggests higher prices are ahead, quite the opposite actually.
There have been many whipsaws in the Commodities' market as of late, with few intermediate-term trends allowing us to trade them with well-defined risk. Every now and again the market provides us with a clear opportunity, this time it's in the form of a breakdown in Tumeric.
There's a saying among market participants that "all gaps need to be filled" or "all gaps are eventually filled", but as with most market generalizations, this saying shouldn't be taken at face value.
This post is going to discuss the four types of gaps and explain why this phrase is not something any market participant should take seriously.
A conversation with Arun Chopra is one that makes you smarter. That's how I see it. Arun has formal training as both a CFA Charterholder and a CMT. He has helped produce award winning films at the Sundance Film Festival and he's on the same journey as us: to make money in the market. He uses a combination of global macro, technical and sentiment indicators that he is working on putting into a more quantitative model. Picking his brain about the process and his experiences in this endeavor was really enlightening. In this episode we discuss current markets, sector rotation, credit spreads widening and the possibilities for the US Stock Market Indexes to break to new lows. I really enjoyed this discussion with Arun. I always do.
We always hear the phrases "fading strength" or "selling into strength" from market participants, but what does that mean from a practical standpoint? How do you know what to sell? When do you sell?
In light of those questions, this week's "Chart of the Week" is going to help provide some context around the types of characteristics we look for when choosing stocks to fade.
This week's "Chart of the Week" answers the question about what characteristics determine the stocks we're fading strength in, so this premium post will outline the best setups I found during my review of the S&P 1500. If you haven't read the other post, click here to do so as it will provide more context around these trade ideas.
Over the last three weeks Sun Pharmaceuticals has been doing its best Deutsche Bank impression, losing roughly a third of its value and trading at levels not seen since March 2013.
As the largest component of the Nifty Pharmaceuticals Index this performance has been a major drag on the index, however, equally-weighted charts can offer us a much better read of the sector's health.
This post is a continuation of our "Free Chart of The Week", which focused on the use of an equally-weighted Pharmaceuticals Index to make the case that the sector is in better health than the cap-weighted index suggests.
In this post, we'll use that information to identify the stocks in this sector offering us the best reward/risk opportunities.
