Stocks got hit nicely this week and we did very well in our bond positions. So where do we profit next? [Read more…]
US Remains The Best House In The Neighborhood
From the desk of Steve Strazza @Sstrazza
Thank you to everyone who responded to this week’s mystery chart.
We had mostly “do nothing” responses again this week but buyers or potential buyers came in close second, many of which said they were waiting for confirmation of the momentum divergence and failed breakdown before taking action.
We only had a few sellers, which is interesting because that’s the camp we’d fall into as long as prices remain below support.
One of the main reasons for our bearish bias towards this chart is the fact that it’s been in a long-term downtrend and consolidations tend to resolve themselves in the direction of the underlying trend.
Uptrends In Stocks Are Falling Apart
We’ve been very clear about how we wanted to avoid owning stocks this month. Fortunately, bonds have been the beneficiaries of the relentless selling in these stocks. Nothing has changed for the positive. But it’s actually some former leaders completely falling apart that now has my attention.
Remember when Industrials broke out to new all-time highs? We said that as long as that was the case, how bad could things be? Well, Industrials are no longer above those former highs and actually just broke down to new 10-year relative lows. This is behavior consistent with an environment where we want to be selling stocks, not buying them: [Read more…]
All Star Interviews Season 3, Episode 18: Larry McDonald, Bear Traps Report & NY Times Best Selling Author
Larry McDonald is the guy I turn to when I want to talk about the Bond Market. He always has something insightful about what’s happening that I’m probably not seeing. We’ve become friends over the years but I originally got to know who Larry was by reading his book, Colossal Failure of Common Sense. This is a book about the collapse of Lehman Brothers being told by a bond trader inside the firm. I encourage you to pick it up and give it a read. It will give you good insight as to what exactly was taking place at the time. In this podcast Larry tells us a good story about the day his team had the most profitable day in the history of the bond desk at Lehman and Dick Fuld didn’t even bother to come down and say hi.
The market today is different than it was in 2019. What’s going on in the bond market is playing a huge role. I couldn’t think of a better time that the present to bring in my friend Larry McDonald to discuss what we’re seeing out there in the markets. This is always a lot of fun talking to one of my favorites!
[Read more…]
The Risk In Owning Stocks Is Elevated
The risks associated with owning stocks are currently elevated.
There are a lot of things I can say, levels I can point out, possible outcomes I can walk you through, all those things. But the one common denominator between all of those is that the risk in owning stocks is currently higher than it normally is.
This is an important time to remember your original investment objectives, time horizon and risk parameters. Before buying a stock, or entering any investment for that matter, these 3 questions need to be answered. I can’t answer them for you. But what I can do is show you what we’re seeing from an intermediate-term horizon.
Our goals here are to make money this quarter. We care about the coming weeks and months. It doesn’t matter to us what the market does next year, and it doesn’t matter what it does today. Weeks and Months. That’s our focus.
For this time horizon, the risk of owning stocks has been elevated. I believed the weight-of-the-evidence had been leaning this way the past month, but we’re just now starting to see it affecting large-cap stocks. We’ve seen the deterioration of market breadth since mid-January. We’ve seen the flight to safety bid in Bonds. And now we’re seeing breakouts that Stocks had been attempting failing all over the place.
Here is a perfect example of what’s happening. The S&P500 had one last push through our key 3300 level until completely collapsing back below it. And this wasn’t like a small correction either. This was a weekly gap lower. How I learned it, this is a potential breakaway gap, suggesting this is just the beginning, and no where near the end, of the selling pressure: [Read more…]
Bulls Lack The Bandwidth To Push Nifty IT Higher
As stocks around the globe slump, we’re seeing another failed breakout attempt in one of India’s largest sectors.
Let’s take a look at what it means and what it’s going to take for it to finally sustain new highs.
US Stocks Catch Down To The Rest Of The Globe
We’ve been advocating for a more defensive approach towards Equities for most of the last month as the Large-Cap Indices failed to hold onto their new highs and have since reiterated that sentiment throughout February. (Feb. 3rd and Feb 18th)
The strongest Equity market in the world has been the US, however, last week prices started to confirm the weakness we were seeing under the surface since January. Today we wrote a brief piece on US market breadth which reinforces our view that defense remains the name of the game.
This follow-up is to make the point that if the strongest market in the world is catching down to weakness in the rest of the world, then India and other countries that have underperformed are likely to continue struggling in the near-term.
In fact, the breadth divergences we highlighted in the US are also playing out in India.
Let’s take a look.
Simple Breadth Measures Reiterating Near-Term Caution
From the desk of Tom Bruni @BruniCharting
Bonds, Gold, and Defensive Stocks like Utilities, and Cash have been our defensive playbook for the last month.
We’ve made it clear over the last few weeks that we don’t want to be long stocks given current conditions and think there’s downside risk from a short-term perspective, despite the structural picture remaining largely unscathed.
Given last week’s slight downside follow-through in US Stocks, I wanted to share two breadth charts from our Market Internals Chartbook that summarizes current conditions well.
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