With Chemical Stocks breaking out to all-time highs, I can't think of a better time than now to do a deep dive analysis on what is going on in the space. You guys know how much I've liked the Chemicals for a while now. This has been a monster since early last year and then picked up again after last summer.
When we talk about the Materials Sector, Chemicals aren't exactly the first thing that might come to mind. But if you dig deep into the Materials space, it is clear that the Chemicals are the leadership sub-group within the broader sector. Today we're going to dive in and see what is really going on here.
Today we're going to focus on what is taking place specifically in the Consumer Discretionary space. This is one of the largest sectors in the S&P500 with respects to the number of components, but the differences between all of the stocks in the group really stand out. While we are seeing some strength in Online Retail and some of the Homebuilders, the Apparel and Traditional Retailer space look terrible. So we don't just want to be buying this sector blindly. I think we need to pick and choose our spots.
In this report I wanted to do a deeper dive into Consumer Discretionary to try and determine the direction of the next major moves and how to best take advantage of it:
For over a decade I lived in New York City and had the opportunity to eat and drink very well. It’s hard not to in that town. Throughout the years I had clients who invited me to great restaurants where we had amazing food and drank awesome wine. Many other times it’s been dinner with fellow market participants or family and friends. While I was easily able to appreciate the high-quality plates put in front of me, the wine that went with it was usually more of a mystery for me.
They would ask me, “JC do you like the wine?” And while I almost always did, I could never explain why. Yes, I liked it. Or no I didn't like it. That was the extent of my wine knowledge. Sure I’ve traveled to Bordeaux and Tuscany over the years but I still couldn't tell you why I liked or disliked a wine.
If you told the average market participant that momentum stocks outperformed this week and are in the process of breaking out relative to the overall market, they would say you're crazy. But for those of us who ignore the gossip columns and instead focus on price, this should come as no surprise. Sure, some of the mega-cap names have corrected a bit since last month, but they still all fall within the context of much bigger uptrends. The term "Momentum stock", on the other hand, is thrown around way too lightly, in my opinion. So rather than make up definitions for them, we'll just use the stocks that make up the MSCI USA Momentum Index (we like to use common sense here). If you compare this index to the S&P500, Momentum names are attempting to break out to new all-time highs.
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I've been out of town for the past week clearing my head and taking a break from markets. This is one of the most important parts of my entire process. I explained why in this post. While I was away, I peaked at the Internets to see what the twitterati was up to while I was on vacation. Since I was in Hawaii, 6 hours removed from New York City, most of what I read was after market hours. Boy are you guys pessimistic! Do you not see that stocks are in major uptrends? And not just in the U.S. but all over the world? Do you not read anything I write? I could not have laid out the bull case an clearer before I left.
Taking time off regularly has been one of the most rewarding parts of my professional life. This is especially the case in recent years now that I've finally recognized its true value. Besides the obvious fun and relaxing parts about a vacation, it's more about the results of that experience that I'm most concerned with. A lot of us work very hard and we spend an inexplicable amount of time and energy trying to solve the always evolving puzzle that we call the stock market. It's easy for us to get lost in the madness. In fact, as humans, we're built to get lost in it. So it's important to recognize that this flaw exists within us so we may act accordingly to counter that trait as best we can.
This week was our monthly conference call for Premium Members. We discussed a lot of things, mostly surrounding the fact that stocks are in uptrends all over the world and we are seeing broadening participation among stocks in the United States. Sectors that had been left for dead the past 6 months like Industrials and Materials are now coming up on all of my momentum and relative strength screens. Healthcare and Utilities are also breaking out to new highs. It's not just one sector or a handful of stocks with some stupid acronym. This is a stock market rally that I believe is a lot younger than most people believe.
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This month’s Conference Call will be held on Tuesday, June 22nd at 7PM IST. As always, if you cannot make the call live, the video and slides will be archived and published here along with every other live call since our launch.
The debate that will always persist is the Stocks vs Gold question. Do we own gold? Do we own stocks? Do we own both? What percentage of our portfolio should be in precious metals? Do we own the physical or the ETF? Whether Gold is at new highs or new lows, the questions will keep coming. It's something that us as humans are driven to constantly. I've learned to embrace it. While I treat Gold and the S&P500 the same way I treat Cotton futures and the Egypt30 Stock Index, it's understandable why others don't.
So let's look at it. In which direction should we expect the next 20% - Gold or US Stocks?
