Until proven otherwise, it is irresponsible to be positioning for a bear market right now. The talking heads and twitterverse all seem to be rooting for -- cheering for, even -- the S&P 500 to break it's 200-day moving average and crash further from there.
It's ok to root for any scenario you'd like, but it's simply unprofitable to act on opinions (yours or others) until there is a basis of fact to back you up. And the only facts we focus on here are those presented and derived by price and volume.
The weight of the evidence still points to higher prices in equities over the intermediate term, and as such we're hunting for bullish trades. Today's hunt yielded a developing opportunity in Caterpillar $CAT.
It's no secret that JC and I are extremely bullish on stocks. Just like you'd like to see in a bullish environment, we're being led higher by tech stocks. And there's no better barometer of health in the tech sector than seeing old bellweather Microsoft still hanging around new all-time highs and cruising comfortably above it's 200 day moving average.
Three weeks ago I had the pleasure of attending the CMT Association’s 45th Annual Symposium in the Financial District of New York City. In prior years I’ve lived vicariously through previous attendees’ tweets and blog posts, so this year I was equally nervous and excited when I decided to attend in person for the first time.
This year’s theme was “Navigating the Gap: Forces That Influence Price Dynamics”, which suggests that there’s a “gap” between the market price of securities and their intrinsic value and that technical analysis can help in navigating that gap by providing a way to analyze market behavior and the law of supply and demand. As market practitioners we know that markets are not efficient, which is why we all do the work that we do.
After a strong 2017 for equities as an asset class, 2018 has started off with a bit of a change of character. Volatility is back and frustrating stock market participants, with the median of 43 global stock market indices correcting 11% peak to trough, however, as of today 31 of 43 (72%) stock markets are in a confirmed uptrend as indicated by a rising 200-day moving average. The median equity market is off 5.77% from its 52-week high and has not hit a 52-week high in 66 days, or about 3 months/1 quarter.
I don't know about you, but at face value these stats do not seem to support the prevailing sentiment that stocks are headed lower, and much lower at that. There are some valid concerns, yes, but after looking at charts from all over the world, the weight of the evidence continues to suggest higher stock prices globally. Still, many question what will be the driving force behind higher prices. Well, in regards to India I see several failed bearish patterns that could fuel new highs in the major indices.
It's hard for a mechanic to tell you what's wrong with your car without lifting the hood to see what's inside. In the stock market it's no different. We often hear people giving a diagnoses of the market's health simply by using the S&P500 or some other popular index. To me, that's irresponsible. This is not a stock market, it's a "market of stocks". There are 500 stocks in the S&P500. The market is not a thing, it's a lot of things.
Sector rotation is the lifeblood of any bull market. Some sectors are indicators of risk appetite while others point to risk aversion. Consumer Discretionary stocks include companies where we spend our discretionary income: retailers, homebuilders and autos for example. Consumer Staples, on the other hand, consist of companies that consumers would use regardless of whether times are good or bad. No matter how the economy is doing, we're still going to drink beer, smoke cigarettes, brush our teeth, wash our dishes and clean our clothes. These types of companies are the Staples.
This past Wednesday I had the privilege of joining 7 world-class Market Technicians in the Stocktoberfest East Chart Battle Competition. It was a lot of fun to share my work with the 450+ conference attendees and surreal to share the stage with people I've learned from since day one of learning Technical Analysis. With that being said, I was knocked out in the second round by Charlie Bilello so I'm writing this post to show all three of my ideas in their entirety.
Commodity strength has been a clear theme over the intermediate term, with the energy complex and base metals doing a majority of the heavy lifting in helping the CRB Index break out of its 2+ year range. The 41% of the index made up of Agricultural commodities has seen mixed performance, with Cotton and Cocoa leading and Sugar and Coffee struggling to put in any sort of meaningful bottom. However, there has been some improvement in the action in Soybeans and Soybean Meal, as well as Corn and Wheat which should support the CRB Index in moving higher. With that being said, this post is going to focus on the three Soy related commodities.
I think seasonality is often misused. Although economic cycles, political climates and public markets are constantly changing, the behavior patterns of humans remain the same. I spend a lot of time studying cognitive behavior and markets and it is very clear how foolish humans can be, including the robots they build. We behave in specific ways during some parts of the year and completely different in others. Those cycles play a role in annual cycles.
One of the most popular, and misunderstood, is the old "Sell in May and Go Away". But what exactly does that mean? Should we blindly enter the month of May with a bearish selling strategy? Does that sound like a good idea? Historically stocks are up for the month of May about half the time and since 1950 the S&P and Dow average a 0% return. June has a similar history of 0% average returns and positive return close to half the time. But that's not really what we're interested in here, which is my point.
This is the most valuable analysis I do every month. When you sit there with some music on and just rip through monthly charts, it really gives you perspective. We're taking a step back and reanalyzing the trends. It's easy to get caught in the day-to-day noise. This exercise helps avoid getting whipped around. I encourage everyone to make their own list of Monthly Candles.
I just got back from a week in New York City and here's what I see: The winners keep winning, the losers keep losing, things keep getting better and people think they're getting worse. I like that combination.
When I was 18 years old I moved to the New York area and spent a total of 15 years out there, most of which was in the financial space surrounded by entrepreneurs, traders, investors, analysts, fintech, traditional media and the biggest names in financial social media.
For the past 3 year's I've lived in beautiful Sonoma Valley, CA in what some might describe as something of a bubble. I don't watch financial television. I'm not ‘in the know’ about the daily gossip except for what I see on twitter. And even then, I don't consume nearly as much of it as most people. I'm not at the Hunt & Fish club once a week, I don't attend every book party in New York and I'm not surrounded by financial journalists every day. I'm out.
Silver has been consolidating in an ever tightening range and signs are showing that a big move away from this consolidation is setting up. And this week, the Silver iShares ETF ($SLV) may have tipped it's hand to which direction the next big move will happen.
