When it comes to the U.S. stock market, there are a bunch of popular stocks that many consider important bellwethers that could give clues to the health and direction of the overall market. Personally, I look at shares of J.P. Morgan Chase (JPM). They have a long track record that goes back to the 19th century. More importantly, with a market cap of $250 billion, this bank has a huge influence on the financial sector, not to mention the entire market. But even more telling, in my view, is the historically high positive correlation between J.P. Morgan shares and the S&P 500.
There is a lot of noise out there about the Mexican Peso and the Presidential Elections. So I can't think of a better time to focus on the supply and demand dynamics in the forex markets to see if we can determine the most likely direction of the Peso. Fortunately, as technicians, we can just ignore all that junk and spend our time on the only factor that actually pays, which is price.
Throughout the second half of 2016 I've remained in the camp that interest rates are going higher and that bonds are a fade. The action into 4th of July weekend originally put me in that camp and I continue to believe that, bigger picture, this is the underlying trend that we need to respect. The catalyst here, in many cases, is becoming more and more clear with each passing day. Forget the economy and the stock market, inflationary forces are moving in sync with the bond market suggesting a very high correlation between the inflation trade and higher rates.
Let's break this down using math and blatantly ignore anything the federal reserve has to say. Listening to them has been a time waster and money loser for years. I don't expect this trend to change any time soon. I'm sure they are nice people, but from a portfolio construction perspective, they offer absolutely zero value, and some might argue that listening to the fed is actually detrimental to a sound investing plan. I agree with both the latter and the former: that noise is toxic on all accounts.
Transports this week are hitting new 6-month highs relative to the S&P500. Remember, these guys have been the leader for years. To review, the Dow Jones Transportation Average peaked in late 2014, well before the S&P500 put in its final top in May of 2015. Moving forward, the Dow Transports put in their bottom in January of this year, the month before the S&P500. So yes, we want to continue to look to the Transports for leadership.
Today we are breaking down the Transportation stocks once again to see what is really happening underneath the surface:
With all the noise surrounding U.S. elections this month, we have seen very little coverage about the recent surge in base metal prices. Sure, everyone is talking about gold hitting a monthly high, but don’t let the shiny metal blind you to what is happening with such base metals as aluminum, nickel and tin. You don’t have to travel too far back in history to see what has happened to U.S. stocks when those base metals start making some noise.
Register here for our live monthly conference call for Premium Members of All Star Charts India.
November's Strategy Session will be held on Wednesday, November 3rd 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.
You guys know that I consider the S&P500 to be just one index in just one country in just one asset class in the entire world. There is a lot more out there. And while this might be true, I would also argue that this one index is one of the more important ones that we need to be watching. It is a good representation of U.S. Stocks, since the Dow Jones Industrial Average is just 30 names, the Nasdaq is tech-heavy and the NYSE Composite has a lot of international exposure. One can argue that the Russell3000 is the best representation of the U.S. since it represents over 98% of all investable assets in U.S. equities, but there is no liquid asset to gain exposure to it.
So today we are breaking down the S&P500, setting price targets and defining our risk management levels:
It's important to recognize what type of environment we're in for the market. During different times of the year, traders and investors tend to behave in certain ways. When you smooth out the data over many years, their patterns become clear. We all hear about, "Sell in May and Go Away", but what about, "Remember to Buy In November"?
Today we're focusing in on the end of what is historically the worst seasonal period of the year for the Dow Jones Industrial Average. So what happens next?
Every month I host a conference call for All Star Charts 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 have been bullish towards both U.S. and International stocks since early July and are seeing money rotate into new sectors and countries showing leadership. We will be discussing this in detail on Tuesday.
We will also be focusing particular attention to the recent sell-off in precious metals and rally in US Interest Rates.
This month's Conference Call will be held on Tuesday October 18, 2016 at 7PM ET. Here are the Registration Details:
