I have to give credit to our Intermarket Analysis work for a lot of our success over the years. This "Cross-Asset" perspective is incredibly valuable, particularly when it comes to identifying and staying with important trends. As a supplement to our Technical work in U.S. Stocks and Indexes, we incorporate a variety of Intermarket relationships to help us formulate a thesis. These include Bonds, Commodities and Currencies.
When it comes to safety, I don't care what people believe is a safe haven, I only care how the market reacts when it needs to go safe. When markets stressed and volatility rises, stocks fall in price and US Treasury Bonds and Japanese Yen reap the benefits. When did Yen and Bonds get strong? Summer of 2015 just as the S&P500 was topping out. When did Yen and Bonds peak? When stocks got going several months before the 2016 elections. Both of these are near their 52-week lows, which makes perfect sense with Stocks at all-time highs.
The one thing we do know is that stocks are not in a downtrend. New all-time highs are consistent with a stock market environment where prices are rising. We saw new all-time monthly closing highs in most of the major U.S. Stock Indexes last week. The question is more about whether or not we're starting to see this trend change or deteriorate in any way. The short answer is no. We do not see enough evidence to support a bearish approach towards equities, quite the opposite in fact.
For most of this year we've been writing about the overwhelming amount of bullish evidence for US Equities, however, as part of our "weight of the evidence" approach we're always questioning our thesis (i.e. here and here).
In today's post I want to share that exercise as I perform it, outlining some current concerns and what the market would potentially look like in an environment where stocks as in the US as an asset class are falling. We're going to stick with our top-down approach and start with International Equities and inter-market relationships, then drill down into specific examples that help illustrate what we're talking about.
There's been a lot of talk about equity market breadth both in the US and globally, but one thing I've not seen mentioned throughout the debate is Dow Theory. While there are five tenets of Dow Theory, today I want to focus on the aspect regarding confirmation among the three averages: The Dow Jones Industrial Average, The Dow Jones Transportation Average, and The Dow Jones Utility Average, by assessing their primary trends.
Every so often we hear the narrative that under-performance from China's stock market is a canary in the coal mine for US Equities, and the recent tariff tantrums have brought this discussion front and center. Today I want to look at this relationship to see if it has any merit or if it's just a smart sounding soundbite that you can use around the office water cooler.
The relative weakness of the Nifty Free Float Smallcap 100 has been a theme all throughout 2018, so with today's chart of the week I want to take a look at what that potentially means for the broader market.
I'm having a great time here in Mumbai at the 7th annual Traders Carnival. I had the opportunity to sit down with Navneet SalujaDsouza from Bloomberg Quint to discuss my process and approach to markets.
This past Wednesday I had the privilege of joining 7 world-class Market Technicians in the Stocktoberfest East Chart Battle Competition. It was a lot of fun to share my work with the 450+ conference attendees and surreal to share the stage with people I've learned from since day one of learning Technical Analysis. With that being said, I was knocked out in the second round by Charlie Bilello so I'm writing this post to show all three of my ideas in their entirety.
This is the most valuable analysis I do every month. When you sit there with some music on and just rip through monthly charts, it really gives you perspective. We're taking a step back and reanalyzing the trends. It's easy to get caught in the day-to-day noise. This exercise helps avoid getting whipped around. I encourage everyone to make their own list of Monthly Candles.
As homo sapiens we're hard wired to feel the need to gossip. This goes back hundreds of thousands of years throughout evolution. We still see it today and through the speed of communication technology, that gossip gets amplified. While some would argue the issues of today's society are unique, anyone who studies history knows that none of what we're seeing today is new.
It's our job as investors to be aware of this cognitive behavior flaw and work on avoiding the potentially disastrous implications of allowing our evolutionary gossip habits to enter into our portfolio decision making process. I've seen some amazing technicians and traders let their political opinions get in the way of their "process" and watched their horrible downfall. It's been heart wrenching to watch, but the lessons learned by witnessing their collapse is something that will stay with me forever.
The current political and economic environment is unique in it's own way, but they always are. Rather than focusing on the noise, I've found it extremely valuable to pay attention to the only thing that actually pays us: price.
We want to be buying stocks. I don't think I can be any more clear about that.
You guys know me as the obnoxiously bullish guy the past couple of years in the midst of "unprecedented pessimism". I'm willing to admit that I have an unfair advantage that I just pay attention to price and purposely ignore everything else that most of you have to endure. This focus has allowed me to see clearly what is actually taking place instead of assuming that who I'm listening to or reading knows what's going on.
Today I want to show you guys one single chart that I think tells the story of what the hell is going on here. It is awfully difficult for me to be bearish of stocks if the most important sectors in America are not just making new highs, but also breaking out to new relative highs. These leading sectors aren't just doing well, they're outperforming the rest.
