In a post earlier this month, we scanned the S&P 500 for the strongest uptrends so that we'd be prepared to buy stocks when the market stabilized. Well three weeks and an additional 25% drawdown later, and we're going to do a similar exercise.
The last two days' rally in stocks confirmed bullish breadth divergences which suggest a tradeable bottom is near and put the S&P 500 back above its 2018 lows around 2350, giving us a well-defined level to manage risk against. If prices fail to hold this level, all bets are off, but as long as we're above it, we think the bias is to the upside over the coming weeks to months. As such, we're looking for long opportunities that offer asymmetric risk/reward setups in the strongest stocks, three of which we outline below.
We are constantly analyzing market breadth. We do this not just for insight into the strength of the current trend but also because it helps us identify key turning points. We outlined a variety of deteriorating breadth measures in a post last month to support our bearish outlook on stocks, and the signal turned out to be quite timely as the market collapsed soon after.
With the market now severely oversold amid one of the swiftest bear markets in history, we're looking to breadth measures once again for signs of a tradeable low.
This week we've outlined what we need to see from breadth, the Nifty 50 & Bank Index, and Copper in order to get long Indian stocks from any sort of intermediate or long-term perspective.
Although we've not seen those developments yet, US Stocks (S&P 500) is back above its December lows and other foreign indexes have started to catch a bid in the near-term. This subtle improvement is suggesting some trade opportunities could develop on the long side for those who hold positions for a few days to a week or two.
As we look for signs of a tradeable low in Equities, we're not only looking at breadth and the stock market's leaders, we're also looking to the Commodity market for a signal of what's to come.
Let's get into why Copper needs to be on your radar.
As we look for signs of a tradeable low in Equities, we're not only looking at breadth and the stock market's leaders, we're also looking to the Commodity market for a signal of what's to come.
Let's get into why Copper needs to be on your radar.
For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!
We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.
You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?
Last week we started to see a few momentum and breadth divergences form in Indian stocks, however, they've not yet been confirmed by price.
In this post, we're going to outline what price level in the Nifty 500 would confirm them, what confirmation would mean for our intermediate-term outlook, and how we're managing risk in both scenarios.
Just as we focus on the strongest markets and stocks to find opportunities during equity bull markets, we look to identify the weakest areas during bear markets. We just want to be in the strongest trends, regardless of their direction.
A few weeks ago we ran some statistics to highlight US stocks that were bucking the trend during the selloff, as those would be the areas to focus on if/when equities eventually regained their footing. While many names have fared well, we were a bit early as the market soon broke below our risk management levels, putting us in a position where we no longer want to be long stocks.
Warning signals were piling up throughout 2020, but weak breadth has been an underlying issue for Indian stocks since they made new highs in August 2016.
While we wait for breadth and momentum divergences to form and suggest getting aggressive on the long side, we're going to look back at how the average Nifty 500 stock has performed over the last 3.5 years and why this data is relevant to today's market.
