The near-term issues we're seeing in the broader market make this an interesting environment.
On the one hand, there's reason for caution as breadth and momentum concerns weigh on the leaders and major indices but on the other hand, there are still plenty of opportunities for those with short-term time horizons and those with longer-term ones. Our primary intermediate-term timeframe is where things get messy.
With that said, let's take a look at two stocks we discussed during our Members-Only Conference Call earlier this week as they test key levels with mixed results.
We've been fading gold since September for a variety of reasons, but primarily due to the overwhelming amount of selling being done by Commercial Hedgers.
While many of those conditions still exist our risk management for this thesis has always been Gold closing above 1,600.
This week we're getting that, so let's take a look at what's next and how we're taking advantage of it.
Despite our cautious outlook for Equities, there's one stock setting up for a potential short squeeze...and the skewed reward/risk has gotten our attention.
Unfortunately, with the last week or two of action, we've seen an expansion of stocks participating to the downside which suggests this near-term weakness could continue for the rest of the fourth quarter. Rather than the weakest stocks catching up to the leaders, the leaders are now catching down to the weakest names.
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?
There was a nice diversity of responses. Many said they were anticipating a break of the support line and would get short against that level while others were buyers as long as prices held above it. But the majority took a neutral approach, preferring to wait for the current range to resolve before having a directional bias.
A sound argument could be made for any of these answers in my opinion, so with that as our backdrop let’s take a look at this week’s chart.
We've been highlighting the relative strength of certain Gas names in the Energy space since August, and they've worked wonders on the long side.
Although we've issued several tactical updates since then (December and January), I wanted to use today as an opportunity to revisit this thesis and update our approach given many of our price objectives have been hit.
The Fast Moving Consumer Goods Index continues to chop around, but there remains an opportunity in many individual index components on the long side (while avoiding the weak ones).
