This past weekend we got new Monthly Charts, and overall the themes we discussed last month are very similar. With that being said, we'll use this post to discuss a few notable developments.
I've seen way too much at this point to underestimate what the market is capable of doing. People call me all the time and say, "JC crazy market huh?" or "Did you see that crazy move in XYZ". Yea I saw it. So what? As Jay-Z said in his latest album,
if everybody's crazy, you're the one that's insane".
How high can a stock go? Much higher than you think. How low can a stock go? Zero. How low can your account go? In the negatives where you actually owe money. That's the deal we make when we enter the marketplace.
So there is being overly dramatic and there is being realistic. We've seen these clowns calling for market crashes since a month after the last one was over. They prey on vulnerable hard working citizens preaching the end of the world and they make a ton of money doing it. They're terrible people.
How do you feel about a little buy-the-dip action in the crude oil space? Given that there's juicy options premiums to sell into here, it is certainly worth a discussion.
It has been quite a one-way ride lower for crude since early October, but the All Star Charts team may have noticed something that might make it worthwhile to dip our toes into these slightly contaminated waters:
In addition to improvements in sentiment, we’re seeing bullish momentum divergences being formed and/or confirmed across the board in the Energy Commodities themselves, as well as their corresponding US Equity Sectors.
This not only signals some potential exhaustion on the side of sellers, but more importantly, it allows us to define our risk on the long side which we haven’t been able to do since prices broke back below their July highs.
You hear it all the time, "Cash is King". But we forget that it really can be. Not all the time, very few times in fact, but cash does serve a great purpose.
There are a lot of institutions that are not allowed to go to cash, as part of their mandate. The majority of investors, however, do have that option. Why not use it?
You're going to see a lot of the passive investing community advise against cash. "Market sell-offs are an opportunity to buy more at lower levels", they say. "You're not disciplined or smart enough to get back in", they preach. "Just buy and hold and everything will be ok". It's all based off this theory that the market always goes up. I guess if you trust data based off the tiny sample sizes that we have, you'll believe anything.
Crude Oil is down roughly 35% over the last two months as record bullish sentiment unwound and prices fell in what was essentially a straight line. There hasn't been any reason to bottom-fish this market, but today we received our first indication that a short-term bottom may be in.
If you're bullish coming out of this Autumn's correction, then you're betting that recent lows in the indexes mark significant bottoms.
While we at All Star Charts don't believe Bulls are out of the woods just yet, we're of the view that if stocks can manage to trade in a sideways range for any length of time, that might be long term bullish for stocks and the economy in general.
With this as a backdrop, believers of the bull case should look at Walmart $WMT as a barometer of the American consumer and the willingness of investors to step in and take some risk.
It's a market of stocks, after all. The indexes are one thing, but the components that drive them are another. Last week we laid out a list of the stocks we wanted to be buying for a December rally. The idea was to get involved with stocks already working, rather than trying to get cute and bottom fish the underperformers.
We'll see how that works out. In the meantime, let's take a look at market breadth.
Whenever in doubt, zoom out. Monthly charts are a great way to do that. On November 30th we got new daily, weekly and monthly candles. This is a lot of new data that we have to work with.
We're gonna throw an idea out there for the bulls. They aren't dead yet, apparently. And we don't need to look too far before we come across the healthcare sector and stocks like Pfizer $PFE and UnitedHealth Group $UNH that are at or near all-time highs.
During our recent All Star Options conference call, JC brought our attention to this sector and it definitely caught my attention. With the broader markets kind of "stuck in the muck" right now -- not really offering any clear indication of the next major move -- we might as well add some long exposure against a current portfolio of delta neutral and bearish open positions to help give us some balance.
The best idea on the table right now looks like $UNH. Here's how we're going to play it without risking too much...
The stock market has spoken and it seems clear that we’re stuck in between some pretty significant levels of support and resistance. This argues for more of a sideways mess type of a market vs a complete collapse, at least for now.
We’ve laid out some important prices where something more substantial would be possible. We’ve successfully held above those key prices. A few examples are Technology $XLK above the 2000 highs, Regional Banks $KRE & Broker Dealers $IAI above their respective 2007 highs. In the indexes, 2660 in the S&P500 is a big one. We’re not going to have a complete collapse if these assets are above those levels. It’s if and when we’re below them that the real problems could start.
All of this suggests that we’re in more of a sideways range type market, at least for now. In that environment, if we’re going to buy stocks, we want to buy strength. I don’t think it’s worth messing around looking for mean reversions. We want to buy what has already been working compared to the rest during the past 2 months of selling pressure.
A common theme discussed in this month's All Star Options conference call was the fact that many sectors, commodities, and stocks were in "messy" or "sloppy" sideways holding patterns right now. The selloff that began for stocks in early October and bled into early November seems to have abated somewhat for the time being, leaving many stocks with terrible looking charts offering no clues on direction.
But the price action has not been limited to just stocks -- bonds and commodities too all seem to be lost in the muck right now.
This might frustrate some, but these types of environments can be wonderful for delta neutral income strategies. And Gold $GLD is a perfect example of an instrument showing little commitment to any up or down directional movement.
