This week I was over at the Nasdaq in Times Square discussing the current market environment with Frances Horodelski on Canada's Business News Network. The weight of the evidence is suggesting a cautious stance up here after all of our upside targets have been hit in recent weeks. Remember, we've been bullish stocks, globally since late January, and in the U.S. since early February. When our upside objectives are hit, it's time to reevaluate. That's what we're doing now.
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.
This month's Conference Call will be held on Wednesday April 13, 2016 at 7PM ET.
In this month's premium members conference call, we will discuss the following topics:
- How Low Can U.S. Stocks Go From Up Here??
- A Few Non-correlated Trades to Add To Your Portfolio
- What Is The Best Trade In Precious Metals Today?
- How Do We Trade Crude Oil Now?
- What Does The Behavior of Financials Say About Risk-Appetite
- Ags Can Be A Monster, But How High Can They Go?
As always, we'll leave as much time for Q&A as possible.
The weight of the evidence has been building in favor of the bears over the last week or two, making the US equity weakness this week anything but surprising. Throughout the duration of this post I'll outline the evidence that I've been noticing over the last two weeks and what it means for us as market participants moving forward.
Yen Strength - The Yen broke out structurally late last year and hasn't looked back since. Tactically my upside targets were hit this week, but structurally this market has a lot more room to run. Given the high negative correlation between the Yen and US equities, this should continue to be a headwind for equity markets going forward.
We've had a heck of a rally in stocks over since late January, led by emerging markets, energy and metal stocks. Starting in mid-February the U.S. and other developed nations got the memo and started to play catch-up. We couldn't be happier with the performance of the stock market since then. But over the past couple of weeks all of our upside targets have been hit; all of the U.S. Indexes and sectors and about 90% of global indexes. So I've therefore been pretty neutral towards stocks since late last month, but I finally turned more bearish earlier this week.
Here is a market neutral trade that I think is definitely worth paying attention to. Whether you're bullish or bearish, this breakout is not something we should ignore:
From the Brazilian Real and Australian Dollar to the Turkish Lira, many global currencies have been gaining significant traction relative to the US Dollar over the past several weeks and months. These currency moves have also had significant impacts on the equity markets of their respective countries as they tend to be positively correlated.
Last week the New Zealand Dollar joined that group by breaking out across multiple timeframes.
I think there is a nice shorting opportunity in General Electric that we can take advantage of this month. There's nothing better than making money when a stock is falling. The reason is because stocks tend to move a lot faster on the way down, than on their way up. It's the old, Escalator Up & Elevator Down behavior.
The way I see it, $GE hit our upside target of $31 last November, so there's been no reason to own it. This target is based on the 161.8% Fibonacci extension of the massive consolidation throughout 2013-2015. Here is a weekly chart showing prices getting up there, pulling back in December and January, and now more recently rallying back up towards that $31 level and beyond:
We are super excited to announce today that we have added U.S. Dollar denominated charts of Bitcoin to our Members Only Chartbook. The charts included will be updated regularly on both Weekly and Daily timeframes. The Crypto-Currency's $6.5 Billion market-cap provides enough liquidity for many investors around the world. This has attracted huge venture capital investments in bitcoin-based companies from legendary tech investors such as Fred Wilson of Union Square Ventures and Marc Andreessen of Andreessen Horowitz.
Members of Allstarcharts.com have been asking us to include this in our chart work and discussions. So as we always try and do, we listened and added them. Starting this week, Bitcoin charts on weekly and daily timeframes will be included in the list of Currencies, along with U.S Dollars, Australian Dollars, Japanese Yen, Canadian Dollars, Swiss Franc, Euro, etc.
It is very difficult, if not impossible, to put all social media stocks into one category. We do our best with ETFs like $SOCL, but they can be heavily skewed by certain stocks and it ignores others with smaller market caps. Also, what does a company LinkedIn have to do with Yelp or Yahoo? I think we need to be careful grouping them into just one category, and keep in mind that they are all individuals with their own problems as well as their own unique positive qualities.
The reason I bring this up is because yesterday afternoon, Michael Santoli tweeted out a mystery chart asking followers whether it was a buy or sell:
It's been a while since I laid out a bunch of short ideas. As you guys know, I've been really bullish since late January. But hey, upside targets get hit, sentiment shifts, and things eventually change. Here are a list of Dow Components that I think are good shorting opportunities today:
The financial sector of the S&P 500 has been a major laggard over the last few years and 2016 is no exception with the sector down roughly 6% YTD.
The five year daily ratio chart of XLF / SPY represents this relationship. This ratio broke down out of a multi-year downtrend channel while momentum confirmed a bearish range by moving into oversold territory. These conditions, combined with the presence of a downward sloping 200 day moving average, suggest that the under-performance of financials relative to the broader market is likely to continue.
We've just witnessed one of the most epic rallies in the stock market that we've seen in a long time. Remember, this has been dominated by global indexes, particularly Emerging Markets, not U.S. Stocks. We could not be happier to see this rally progress so well as we've been pounding the table to be long since late January. By mid-February, the U.S. and other developed markets put in their bottoms and started to play catch up to the rest of the world. But the underperformance of the U.S. has continued anyway.
Today's Chart Of The Week represents what could potentially be the start of a major structural improvement for U.S. Stocks:
