My weekly run through the S&P500 components is one of my favorite parts of the work week. I put on some music and go through all 1000+ charts. Remember we use the weekly charts to get structural perspective and then the daily timeframes to define more tactical opportunities: 2 charts for each of the 500 stocks. I then break down the index into 11 Sectors and run my analysis of stocks one sector at a time. This way it helps give me a better feel for that particular area within the entire stock market. To take it one step further, I then break down each of the 11 sector workbooks of charts into sub-sectors. So for example, in the "Energy Sector" there will be 4 sub-sectors: Integrateds, Services, Exploration/Production and Refiners.
We live in a world of if/then statements. That's just the way it is. I don't know what's going to happen tomorrow, or next month or next year. But that's okay because no one else does either. That whole lie about "uncertainty" is just that: a lie. There is always uncertainty. That's the point of all this. So we do our best to put together a road map filled with if/then statements. If the market does this, then we will do this. If that market does that, then we'll have to do that. This is the case today, it's been no different in the past and will likely be the same in the future. I don't know of any other way to manage risk responsibly.
When we talk about "stocks", it can be in reference to many things. Most people like using something like the S&P500 or Dow Jones Industrial Average as a gauge because those are the popular United States indexes which contain many of the world's largest companies. That's fair. Depending on what country you live in, your interests are likely to be on your local indexes while you also keep an eye on maybe the United States and/or European Averages. I think it's important to understand that while these indexes are made up of companies based in local economies, the investors that own those stocks come from all over the world. We live in a global marketplace and I think it would be irresponsible of me as an investor to ignore that.
Every month I host a conference call for All Star Charts Premium Members where we discuss ongoing themes throughout the global marketplace as well as changes in trends where new positions would be most appropriate. This includes U.S. Stocks & Sectors, International Stock Indexes, Commodities, Currencies and Interest Rate Markets.
We had been implementing a much more neutral approach towards equities and even most commodities since early March. This strategy worked well as many stocks, sectors and countries were in a sideways mess. Over the past week or so I believe things have changed and there are plenty of risk vs reward opportunities on the long side that we've outlined in recent letters.
I'll do my best to lay out my weight of the evidence conclusions and walk you step by step with how I got there! It will be held on Thursday May 18th at 7PM ET. Here are the Registration Details:
Most of you who know me already know that I incorporate a top/down, weight-of-the-evidence approach. It's not just 1 chart or 1 indicator that says to be long or short the stock market. It doesn't work that way. For me, I put in the work, weigh ALL of the evidence, and then put together a thesis. From there we then look to execute. Since March, however, a more neutral approach towards stocks has been my big theme. As we come into May, I see no evidence that suggests changing that strategy. Cash heavy still makes sense until the data changes and points to allocating that cash once again, long or short.
Today I want to go over a chart that I think the US Stock Market bulls are going to love. To me, it is potentially the most bullish chart in the entire world.
Register here for our live monthly conference call for Premium Members of All Star Charts India.
May's Strategy Session will be held on Tuesday, May 4th at 7 PM IST. As always, if you cannot make the call live, the video and slides will be archived and published here along with all of our past conference calls.
Yesterday I kept a Diary throughout my entire process of reviewing the components of the S&P500. Many of you have written back with such nice things about that. I'm glad you enjoyed it. I think that in order to get the most out the research, it really helps to understand where I'm coming. This helps in the execution process, which is why we're here right? To make money in the market for ourselves and/or for our clients.
Today I felt that a nice supplement to yesterday's S&P500 work is a chart that shows what the S&P500 Equally weighted Index is doing relative to the S&P500 Market-cap weighted index. To me this is a good measure of whether or not we're seeing broad-based participation or if it's just the mega-cap names carrying the weight.
I get asked all the time about my process. A big question is usually around how did I find that chart in such a "random" country or asset, like an ETF on South Korea or a futures chart like Soybeans. To some people these might be assets that are not on their radar, but they are just as easy to trade as Apple shares or Crude Oil, that obviously get much more attention. My answer is simply that I look at all of them and just bring out some of my favorites. This is habit that I got into many years ago, so for me it's second nature.
