When you talk about the fundamentals of these banks, then people get really scared, but there comes a certain point where that horribleness gets priced in.
I'm rarely, if ever, a bottom-feeder in the stock market. But knowing that $DB is just too big of a name to allow to go bust (I think regulators learned their lesson with Lehman Brothers?), it seems like a low-risk, potentially high reward play to dip our toes in the water in a risk-defined play to participate in a rebound.
Sector rotation has been a hot topic as this bull market keeps finding fresh legs to pull us higher. As we scan the entire marketplace looking for clues as to the next sector to wake up, we've identified the Home Builders as a viable option with some clearly defined levels to keep it simple.
Mid and small-cap stocks have been under-performing their large-cap counterparts as of late, however, it's important to remember when looking at an index that it's basket of stocks and therefore looking at each of the components can unearth great opportunities. Yesterday we did a deep dive into mid-cap stocks for long opportunities, so today we're following that up with a look for similar setups in small-caps.
Before we get into individual stocks, I want to highlight the potential failed breakdown that we're watching in the index itself. Last week prices undercut the March lows as momentum diverged positively. If we can get back above 8,040, it would confirm a failed breakdown and likely be the catalyst to push this market to new all-time highs. The individual names within this index remain mixed, so a neutral stance remains appropriate in the index itself until this range resolves itself.
If you've been reading this blog you've probably noticed a lot of posts about the areas of the market showing relative strength, like Technology and Consumer Discretionary, however, one industry not getting as much attention is Airlines. The reason for that is simple; the Dow Jones Transportation Index is sitting roughly 3% off all-time highs within a strong uptrend, however, Airlines continue to struggle to gain any altitude, sitting at 52-week lows on an absolute basis and crashing on a relative basis.
Mid and small-cap stocks have been under-performing their large-cap counterparts as of late, however, it's important to remember when looking at an index that it's basket of stocks and therefore looking at each of the components can unearth great opportunities. In this month's (Premium) Members Only Conference Call we spoke about the strength in the Financial Services, Information Technology, Consumer Goods, and Energy sectors, so this is a follow-up post looking at the mid-cap stocks, many of which are in these sectors, that we want to be buying.
Americans love their burgers. And customers around the world love American iconic brands. These two forces are unlikely to change in the near future, and thus sales at McDonald's restaurants around the world should continue to be strong. Of course, I couldn't care less about the fundamentals. I'm just watching price action and volatility and see a nice opportunity to profit shaping up in the options market for $MCD this summer.
Monday afternoon I was down in San Francisco, so I went by the Bloomberg West studios to do a quick hit with Catherine Murray. She asked me about the S&P500, Technology, Financials and the underperformance of Consumer Staples. We also discussed sector rotation and Crude Oil during the segment.
Despite the higher highs and higher lows in the major indices, all-time highs in riskier assets such as micro and small-cap stocks, and fresh breakouts in leading sectors like Technology and Consumer Discretionary, there continues to be a subset of market participants who fight this rally.
Crude Oil has been in a strong uptrend since late last year and is now giving us an opportunity to get involved on the long side once again after our initial price target near 4,425 was exceeded in mid-April.
Over the last two weeks, prices have experienced a swift 13% decline that has brought them back to a confluence of support near 4,425. Given that they're are still above a rising 200-day moving average and momentum remains in a bullish range, we want to be buying this pullback. Our risk is very well-defined at last week's lows of 4,305 and our next upside objective is 20% from current levels at 5,335. We know where we're wrong and the market is likely to let us know very quickly if we are, but for now the primary trend continues to favor the bulls.
Typically we look to trade in the direction of the underlying trend as that increases our probability of success, however, occasionally lower-probability counter-trend trades offer reward/risk scenarios that are ridiculously skewed in our favor. Today we'll be looking at some of those setups where there are bullish momentum divergences and failed breakdowns that help us to define our risk and put probability in our favor.
A good example of this type of setup is Unichem Labs. Prices have been range-bound for most of the last three years and have been declining for most of 2018. Last week they undercut the 2017 lows and quickly reversed, confirming the potential bullish momentum divergence and failed breakdown. This suggests being long if prices are above the prior lows of 236, with a target near the middle of the range at 285.
