We've been extremely vocal about the Medical Devices space on the blog, and rightfully so, with the sector continuing its long-term trend of out-performance throughout 2018. The index has 57 components, but because the top 10 stocks make up roughly 60% of the index, opportunities in the smaller components tend to be overlooked by many market participants. In this post I want to look at all of its components and highlight names where our risk is well-defined and the reward/risk is still skewed in our favor.
Let's start off with the sector ETF $IHI on an absolute basis for context. Prices are just off all-time highs after successfully retesting their breakout area near 203.50. As long as prices are above that level, short and intermediate-term momentum remains intact and our next upside objective is up near 248-249.50.
Most Nifty Indexes' largest components have a very large weighting on their performance, and Nifty Pharma is no exception. Sun Pharmaceuticals represents roughly a quarter of the index, so today we're going to look at it's role as a potential leading indicator for the rest of the sector.
Below is a daily line chart of the Nifty Pharma Index overlayed with Sun Pharmaceuticals. What we see from this relationship is that Sun Pharma generally leads the index, so when it's showing relative strength a move higher is likely, and when it's showing relative weakness then a move lower is likely. The two rarely separate from each other for long.
Interest rates are on the move, with the Ten-Year Treasury Yield breaking 3% once again after working off its failed breakout attempt from May. One relationship that's highly correlated with the Ten-Year Yield is Regional Banks vs REITS. We've written about this relationship in 2016 and 2017, but it's at an important inflection point so today's chart is going to revisit it.
I'm really excited to share with you guys that I will be coming to Texas in early September for a series of events put on by the CMT Association. I will be speaking at the Dallas Chapter on September 4th, Austin September 5th and Houston on September 6th.
Each of these events will be free to both Members and Non-members of the CMT Association, so everyone is welcome. Here are the dates and details:
It's the end of the month, which means we've got new monthly charts. Last month we discussed the strength in large-cap Financial Services, Consumer Goods, IT, and in certain areas of Pharma, while the weakest areas were mid and small-cap Infrastructure, Metals, Commodities, Realty, Media, and Autos. This post is going to discuss any significant changes from last month, but members can find the rest of the updated charts in the Chartbook.
The strength in large-caps continues, as shown by the Nifty 50 making a new all-time closing high. This month's candle opened at the lows and closed at the highs, signaling a continuation of its uptrend after 6 months of consolidation. If prices are above 11,165 we want to be long as our next price objective us up near 15,260.
I could not be more thrilled that it's the end of the month for one reason alone: Monthly Candlestick Charts. They get me every time! It's easy to get lost in the every day noise surrounding the market. The chart review I do heading into the first of every month is one of the most important parts of my process. It brings me home. There's no better way I know to maintain composure and recognize trends than this monthly music and chart session!
Since June of 2017 when the S&P500 broke out above 2400, we've had a target of 3000. After close to a 4% rally in the S&P500 Index this month, we went out just 6 points from a new all-time high monthly close. This is not any evidence we think suggests anything has changed. To the contrary, higher prices are things we expect to see in an uptrend:
51 days until expiration is the sweet spot for putting on delta neutral income trades. "Income Trades" are best established in underlyings experiencing elevated levels of volatility (resulting in higher options prices), but that are stuck within a price range. The thinking here is that volatility is likely to revert back to the mean and the underlying is likely to stay within it's current range. Inertia, ya dig?
In coming weeks, All Star Options will be unveiling an Income Trades Heat Map which will help direct you towards the best ETF candidates for putting on these trades whenever you're interested.
In the meantime, we've got a trade from the top of this list ready to go.
Based on the great feedback we receive every day, we know a lot of Allstarcharts India readers have an interest in the mid-cap and small-cap segments of the market. Typically we cover those areas in the Monthly Conference Call, followed by a deep dive (or two) on anything that we didn't have time to discuss. Additionally, we publish shorter posts throughout the month highlighting opportunities as they emerge.
While a good start, we wanted to create something to provide more regular coverage of the space, so we've added nearly 100 mid and small-cap stocks to the Chartbook feature of our site. To narrow this universe down to a manageable size, these lists include those stocks that are available to short via futures and/or options, so that we can provide consistent analysis on both sides of the trade as we do in the other Chartbooks.
The original inspiration for the monthly conference calls for members of All Star Charts came from the benefits of the Question & Answer sessions. We have really smart and experienced members and I think everyone can get value from this process, myself included.
Over the years, our conference calls have gotten much more in depth and to keep the videos under an hour, we simply have not had as much time for Q&A as was originally intended. Therefore, starting this month I will be hosting a video Q&A which will be archived for everyone to watch.
If you have any questions, you can fill out this form and I will be answering them in a video on the evening of August 1, 2018.
Please note that this form is not a pop-out window or link, just enter your name and question directly below in the spaces provided.
When I thought of the title for this post I was hoping to make a Nascar analogy, but quickly realized I don't know anything about Nascar or racing. With that aside, what's clear from our recent blog posts is that we remain bullish on US Equities but open-minded to the new data we're getting each day. As I was going through my sector chartbook this weekend I identified a few momentum divergences that have emerged, as well as some bullish data points that potentially offset them, so this post will quickly go through my findings and key takeaways.
