From the desk of Tom Bruni @BruniCharting

Tuesday we posted a mystery chart and asked you all to let us know what you would do. Buy, sell, or do nothing?

The majority of responses had a bearish bias, however, a few suggested buying the "failed breakdown" with a tight stop, and even fewer said wait it out. Both sides could prove to be right depending on the timeframe, but it's clear the mixed signals make it tough to have conviction.

Let's get into the real chart and why we feel it's relevant.

You guys who know me already know that this is my favorite exercise of them all. We only do this 12 times a year. Let's just say that it takes you an hour, if you really want to take your time, that's 12 hours of your entire year. Think about the amount of time you spend each year performing other analysis. As far as I'm concerned, it's not even close. These 6 hours (for me it's 6) are easily the most valuable 6 hours I spend all year analyzing markets.

This process allows us to take a step back, which forces us to identify the direction of the primary trend. It's impossible not to, especially when you're seeing similar themes across Indexes, sectors and asset classes.

Here's what stands out from this month's review:

Vacation is over and January is in full gear. Over the holidays we had our downside targets hit in the S&P500, Dow Jones Industrial Average (23,350), Dow Jones Transportation Average (9300), Nasdaq100 (6150), and Russell2000 ETF (129). Now, just because these levels were achieved, doesn't mean we can't go substantially lower.

However, in this post we're focused on the current mean reversion we're seeing in stocks around the globe and how to profit from it. We'll worry about later this year later this year.

I spent the New Year in Lake Tahoe, which is one of my favorite and most beautiful places in the world. Heading up to the lake with family and friends for a few days (and leaving my laptop at home) really helps clear my head and let's me focus on the environment we're currently living in. I see again and again people trying to compare today's market to "the average" of a dozen or so bear markets in the past. It's painful to watch.

It's hard to remember a time where I saw this much irresponsibility among investors, especially the pros who should know better. These "asset managers" are so busy dealing with investors, compliance, operations, marketing, regulations and whatever else they're busy doing, that they've completely underestimated the amount of risk in the stock market. It's like they forgot that risk is a real thing.

And what are they doing to justify their actions, or lack thereof? They're relying on a tiny sample size of prior market declines to "wait and see" what happens. They think they're "Portfolio Managers", but they should be "Risk Managers". There's a huge difference.

It's been a great couple of months for Bond bulls. As unprepared investors worry about their portfolios and financial media outlets irresponsibly call this market "crazy", we've been happy to watch the destruction of stocks and new flow of money into safer, fixed income assets. Interest rates have gotten slammed with stocks and bonds ripped. One for the good guys!

So the question now becomes, how low can rates go?

This is one of my favorite things to do: Forget everything that happened this quarter and this year and start from scratch. It doesn't matter what we did or how we felt in 2018. It's irrelevant. We're moving forward. This is my Q1 2019 Playbook.

From the desk of Tom Bruni @BruniCharting

Yesterday after the bell we sent out our Year End '18 ETF Risk Update to our Institutional Clients, covering 100+ of the most actionable and informative charts. To put this report together we examined over 500 inter-market and cross-asset relationships across weekly & daily time-frames to identify trend direction, momentum, risk-management levels, and prices targets.

In this premium post I want to highlight a few charts from each of our five sections: Factors, International, Domestic, Fixed-Income, and Thematic/Niche. If you like what you see and want the full report, you can fill out our Institutional Client Application or contact our Head of Institutional Sales, Jonathan Bloom, for access.

Without further adieu, let's look at some charts.

Having Trading Psychologist Dr. Brett Steenbarger on the podcast was a huge treat for me. He works with the best traders on planet earth on a daily basis. Needless to say, when Dr. Brett is telling me something, I want to listen. In this episode, he let me ask him all the questions I was curious about and he happily answered them all with solid advice and relevant anecdotes. We make a lot of mistakes as investors because of our many flaws as humans. When our stress levels are elevated we start acting emotionally, instead of rationally. Taking losses is a difficult task for us, even though we all know that losses are part of the deal. I really enjoyed this conversation and it could have gone on forever if I didn't end it. I hope you get as much value from this chat as I did.

Bonds Funds are breaking out to new 3-month highs. This comes after consensus this September was for higher US rates, and therefore, lower prices for bonds. When the market is leaning too much in any one direction, the unwind of that extreme positioning can be intense. That's what I believe has been happening throughout the 4th quarter.

Here are two charts that show rates could continue lower for some time. The first is a long-term chart of the US 10-year Yield failing to break out above the downtrend in place since 1981: