In July I looked at the trend and momentum readings of stock markets around the world and India's Sectors to identify the overall risk appetite for Equities. Today's update will perform the same exercise and compare the results to determine if breadth has improved, deteriorated, or stayed the same, as well as what the implications of these changes are.
Where I live in Colorado, we received our first snowfall of the season. And it meant business. Today, we woke up to 8 inches of overnight snow and it kept falling all morning. Yesterday, it was nearly 70 degrees and sunny. It's the time of the year when seasons change quickly around here. Not unlike the markets this week.
My wife and I have both been more mindful of our diet this year, and our four year old son is growing like a beanstalk. And as the season is changing rapidly, we find ourselves scrambling through our closets looking to locate last winter's clothes, only to find most of them don't fit any of us. So, comically, we find ourselves a little ill prepared for the new winter.
This all feels very fitting as the markets most definitely and rapidly changed seasons this week. And we were still wearing a lot of last season's positions. As you can imagine, that left us pretty uncomfortable.
Since we launched Allstarcharts Indiain January, we've seen great traction and have gotten a lot of feedback and suggestions from our readers and subscribers. In fact, many of the ideas we've added to the platform and are currently working on have started from conversations with you all.
This is the monthly conference call 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 Wednesday October 17th at 7PM ET. Here are the details for the call:
A major part of the thesis for higher prices in Canada was the breakout in Financials (and REITS) which represent roughly a third of the TSX Composite, however, over the last few weeks we've seen failed breakouts in many of these leading stocks.
In this post I'll highlight some charts identified during my Chartbook update that describe the type of environment we're in for Canadian stocks and why a more neutral stance appears appropriate. Given the correlation between equity markets around the world, I'd also encourage you to read some of our other free pieces about the US here, here, here, and here.
After last week's move to the downside I figured there would be a lot of changes to the IBD 50, and there were, so I want to highlight the characteristics of some names that continue to hold up well.
Some of you guys have been reading my work for over a decade. But I understand there are many newer readers, so I think it's important to address what's going on here. I've been called a Permabull many times for over 2 years now, meaning that they believed I just always had a bullish bias towards stocks. The truth is that while so many were eager to pick a top during this entire rally, I was consistently bullish because the weight of the evidence pointed that way. This is no longer the case and our approach has had to adapt over the past week to a new environment.
We're fortunate to have been accurate with our risk levels. As soon as Small-caps broke 169, things got bad. There was no reason to be in them for us if we were below that in $IWM. Large-caps broke our levels early this week and things got progressively worse after our prices were breached. That is why we set them. That's the good news. The bad news is that I'm confident this is just the beginning.
Here is a list of stocks we want to be shorting to profit from the new bearish stock market environment we've been in this month. I believe this type of market is here to stay and here's how we can benefit:
Long trades getting blown up all over the place. Luckily for us, we'd had a good run coming into last week with opportunities to take profits in a lot of our positions. That makes the exits and adjustments that have been forced upon us the last few days a bit more palatable. In both cases, the profits and losses were taken according to our plans as laid out when we entered into the trades in the first place. Weeks like this are a good reminder of why we put trade plans together up front to begin with. When markets start getting wacky, the last thing we want to be doing is scrambling in the wind, trying to keep our heads about us as we're struggling to assemble puzzle pieces on a board that won't stay still.
The good news is, rising volatility will likely offer us some good higher probability income trades in the coming days and weeks to hopefully more than make up for this week's reality check.
Is this 2008 all over again? 1987? 1929? I doubt it.
We're not seeing any stress in credit, which is where the real problems start. In fact, some stocks and sectors are going up while others are going down. We've seen relative strength in Energy, Utilities and Consumer Staples. Remember, the Dow Jones Industrial Average closed at a new all-time high just last week. It's easy to forget right?
So what's the problem? The problem is that we have failed breakouts in all of the major U.S. Indexes, and at the very least, it is going to take some time to resolve. The questions are: How long? and How low could we go?
The way I see it, we're either buying stocks at higher levels or we're buying them at lower ones. If this is just a shake out and we take off from here, that's fine. If we go lower, which is the higher probability, then it will take a series of positive divergences in breadth and momentum. All of the risk management levels we highlighted throughout September have been violated. That's life.
Here are the levels we have identified as the most important moving forward:
It's not just the U.S. that is breaking our important levels, stock market indexes all over the world are reacting to the volatility. Europe is flirting with dangerous areas but Brazil and Russia have bucked the trend, likely due to their exposure to Energy. Other countries like India and Tech based markets have been the ones coming off the most in the emerging group.
