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?
This week's talk of the town is how Financials, particularly Regional Banks, are rolling over relative to the rest of the market at a faster rate than the Yield Curve is rolling over.
While that's certainly something worth noting, Financials as a group don't really become that interesting until they break out to new all-time highs.
Instead, I think the focus should be on the Broker-Dealers & Exchanges ETF (IAI) as it presses up against all-time highs of its own.
Let's take a look at what's happening.
Here's the Broker-Dealers & Exchanges ETF (IAI) holding well above its 2007 highs after a successful breakout retest in January 2019. Today, prices are pushing back up against their 2018 highs as momentum approaches overbought territory on the weekly chart, confirming the strength of buyers. From a structural perspective, there's not a lot to dislike here.
The dash to trash is a big theme in the first two weeks of 2020, with names like Beyond Meat (BYND) and other beaten-down IPOs from the last year catching a bid and working their way higher.
We've been focusing a lot on the Marijuana sector over the last month because the ETF and many individual names are at levels where it would be logical for a reversal higher to begin.
Today we want to reiterate that potential and highlight two of the largest stocks in the space that are both liquid and offering a skewed reward/risk at current levels.
Sometimes the greatest things in the world are right there in front of you.
Of all the charts I look at and indicators that we include in our process, Consumer Staples relative to the S&P500 has to be one of the most valuable. And for that matter, one of the more simpler tools to use.
Consumer Staples are the things we're theoretically going to buy even if there's a recession or the economy is doing poorly. No matter how bad things get, we're still going to drink beer, smoke cigarettes, brush our teeth, wash our dishes and so forth. Those stocks tend to outperform when the rest of the stock market is falling. Some of the top holdings of the S&P Consumer Staples Index include Colgate-Palmolive, Philip Morris, Procter & Gamble, Coca-Cola and Pepsi.
These stocks represent consumer staples and tend to pay higher dividends and are less volatile than the overall market. We call that "lower beta", because it makes us sound smarter.
Anyway, you can see in this chart how helpful the relative strength in staples has been in identifying trends and turning points:
There are a lot of people out there who would rather fight trends than take advantage of the ones that are already in place. The idea is they are always looking for the reversion to the mean. And while some think prices always come back to the mean, it's often forgotten that the mean can also catch up (or down) to price. I learned this lesson the hard way in 2013 and it has served me well ever since. This episode is short and sweet but I think adds a tremendous amount of value.
When I asked Phil to comment on the subject, he said, "Give me someone who can adapt, someone who is flexible over someone who is a rocket scientist any day because I can teach him to ignore that voice inside his head telling him that breakouts must revert.
I'm really fortunate that I get to interact with traders and investors from all over the world on a regular basis. I receive emails with great questions all the time. And while I'm happy to share my thoughts, it's these questions that really help force me into thinking about a lot of different things. So I'm learning every single day from this simple exercise. Please keep them coming!
Here is a good example of some of the questions I get. This one comes along quite often, in fact. So I wanted to share it with you and include my response.
Humans are incredible storytellers. We've convinced ourselves of all kinds of things that biologically don't exist, like state borders and even money. States aren't like mountains or rivers that we can see and touch. They're just stories that we all agree are true, which is why it works. Money is really just a worthless piece of green paper. But we all agree that a $10 bill gets you 1000 sheets of paper to print your charts out on. While it helps society function, these things we're referring to are just stories. They are really nice stories, but they're just stories. They exist only in our minds rather than biologically.
The reason homo-sapiens have conquered the world is because of our ability to believe stories. If there were 7.5 Billion chimpanzees in the world today instead of 7.5 Billion humans, it would be complete chaos. Other animals don't have the ability to use their imagination to deal with many others of the same species. That's why other strong and smart animals are locked up in cages at zoos and laboratories, while humans rule the world.
Let me take you back to simpler times back in 2006 when you used to hear things like, "Real Estate only goes up" and "God only made so much land". Heck, you may have even said those things yourself.
But it was the brilliant market timers at the ETF companies that really stole the show. The iShares U.S. Home Construction Fund $ITB launched on May 1, 2006, and here's what it did immediately after that:
Meanwhile, the SPDR S&P Homebuilders ETF $XHB launched on January 31, 2006, and here's what it did immediately after that:
Happy New Year! I don't know about you, but I couldn't be happier about kicking off 2020. Markets around the world are making new all time highs (including the US! -- I know, shocking for those of you fixated on War and Tariffs "news"), and volatility is surely to ramp up into the 2020 Comicon, er... I mean U.S. Election, resulting in tremendous swing trading opportunities for active traders like us.
So let's get to work!
During our recent All Star Options monthly conference call (link up soon), JC & I mentioned a few stocks I'm watching for potential entries.
One of those stocks is ready right now -- Oneok Inc. $OKE.
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?
This week on the podcast I'm thrilled to have Quint Tatro join me as our guest. I've been following his work for a long time and have always appreciated his technical approach to managing portfolios at his advisory firm Joule Financial. This was a great conversation where Quint walks us through how he got to Technical Analysis in the first place and how he applies those methods on a daily basis. We went over the overall stock market and how he wants to overweight International Stocks and Emerging markets heading into 2020. He also likes Gold bigger picture here and the mining stocks that come a long with it. I really enjoyed this one. Give it a listen!
