You guys know that I prefer to incorporate more of a weight-of-the-evidence approach to markets rather than basing my decision making on a single indicator. We look at stock markets all over the world to find themes, both bullish and bearish, and then take advantage of them within U.S. markets. I then take a similar approach and go sector by sector in the U.S., including a series of sub-sectors, to break it down even further and find themes within the U.S. As you guys well know, the reason we were bullish since January was because of the weight-of-the-evidence internationally, not because of what we saw in the S&P500 or Dow Jones Industrial Average. [Read more…]
[Premium] Updated Notes on U.S. Sectors and Sub-sectors
The U.S. Stock market and most of its sectors continue to rally. As happy as we are to see this, and as much as we expect this to continue through February, these are only counter-trend rallies within larger structural declines. The good news is that counter-trend rallies in bear markets historically tend to be the most powerful kind of rallies. I think there is still room to the upside in many different sectors with very well-defined risk.
All of the charts have been updated on the Chartbook. Here are my notes for this week’s sector review: [Read more…]
BNN Appearance: Agribusiness Stocks & US Dollars
Wednesday morning I was down at the Nasdaq chatting with Frances Horodelski from Business News Network. The mean reversion trade in Energy worked out nicely since last time I was on BNN in March. But at this point I think the easy money has been made there and money appears to be rotating into the Agribusiness sector. We discuss how to take advantage of this as well as the US Stock Market as a group and the weakening US Dollar.
Here is the full interview:
Click Here for more information on our Premium Technical Research Packages
Source:
Agribusiness Stocks Ready To Explode (BNN)
Tags: $SPY $MOO $TSN $AGU $6C_F $USDCAD $UUP $DX_F $XLK $XLP
Agribusiness is My Favorite Base In The World
The bigger the base, the higher in space. That’s the old saying that I learned from my technical predecessors years ago. I was on the phone with legend Louise Yamada earlier this week and I asked her who came up with that phrase. She told me she wasn’t sure but 35 years ago she used to hear Ralph Acampora and Alan Shaw say it all the time. Regardless, remembering this simple phrase has helped me tremendously allocating assets for our investors.
Today I want to bring up a sector that I think could be about to explode higher, simply because of its prolonged base. We’re looking at the Agribusiness sector, and more specifically the Market Vectors Global Agribusiness Index. Its components have to generate at least 50% of their revenues
First, here is a chart showing the Agribusiness sector compared with the S&P500. Notice how we have come all the way down to where this sector really started to outperform towards the end of 2008. We are putting in a rounding bottom right at that level:
Next here is a weekly candlestick chart showing the size of this monster base going back to the highs in early 2011. Notice the higher lows along the way. This signals to us that over the last 4years the buyers are getting less and less patient and willing to pay higher prices on any dips:
We are currently taking out a downtrend line from those 2011 highs which is our cue to really start paying attention. The overhead supply here going back 4 years is clear and defined by the gray shaded area.
From a more tactical perspective I think this week’s breakout in $MOO is a powerful one. You can see in this daily chart that we had a couple of false starts since November, but this breakaway gap cannot be ignored:
I think we’re off to the races and any dips need to be bought. From a risk management standpoint, this is only something we want to be in as long as prices are above this former overhead supply since last summer. From a structural standpoint, we can use the long downtrend line from the 2011 highs as pointed out on the weekly chart for longer-term investors.
I came into 2015 thinking this would be our first huge positions of the year, but we’ve remained patient for several reason but it’s now time to focus in on the agribusiness sector, both on absolute terms and relative to the overall market.
There are a few ways to take advantage of the strength we think is coming. One is, we can just keep it simple stupid and buy the ETF which tracks the entire index. But there are some individual names within the basket that also look interesting and offer much more liquidity. Here are the 10 biggest components by weighting:
I really like this space guys. I think $MOO sees a 15% jump in the near term, at least…..
***
Click Here for more information on our Premium Technical Research Packages
Source:
Market Vectors Agribusiness Index Facts (Van Eck)
Tags: $MOO $SPY $SYT $MON $DE $POT $ADM $ZTS $MOS $TSN
One-Third Of the Year Is Over. Now What?
Now that we’re officially a third of the way through 2015, I think it’s a good time to reflect on what we’ve seen so that we can get a better idea of where we might be headed. I’ve taken a little bit of time off from the blog as we held very high cash positions over the past few weeks, but I’m back and want to share some thoughts.
As far as the major U.S. Averages go, I think structurally they all look fine and are still in strong bull markets. I find it tough to argue against that. From a more tactical perspective, these consolidations over the past few months look constructive to me and I would expect breakouts to new highs at some point soon. I won’t be loading up on Index ETFs or futures through; I think there are better opportunities within individual sectors.
A year like this is very frustrating for the passive investor who owns the averages and doesn’t take advantage of the overwhelming dispersion we are seeing between stocks as sector rotation has ruled the land so far. Look at areas like Energy, base metals and emerging markets for example, that were left for dead, absolutely dominating recently (see here).
One of the reasons we’ve held large cash positions the past few weeks is because a lot of our upside targets that we had coming into April were hit a lot quicker that we expected. It’s not a bad thing, but when targets are hit I think it’s important to back off. I still like this emerging, energy, base metal theme going forward, but I think it’s important to pick and choose our spots. The entries today are not as favorable as they were, say a month ago.
I’m happy to see the U.S. Dollar get crushed the past 6 weeks. I’ve never seen such consensus bullish US Dollar sentiment. That was nuts (see here). The easy money has been made on the short side here, but I think this unwind continues. The US Dollar Index itself hit some very important upside targets in mid-March (see here), so I’d bet it’s going to take some time for this to unwind. I would not be buying US Dollars for anything other than just a very very short-term trade. I like the others, particularly Canadian Dollars, which I have liked since they broke out in Mid-April. But just like in the sectors mentioned before, the entry point today is no longer as favorable as it was last month.
In the bond market, I am happy to see rates mean revert while bonds get hit hard. I’ve liked the Long Crude Oil / Short Treasury Bond trade and still think this mean reversion has legs (see here). The ratio in the USO/TLT pair, which allows you to express this trade using ETFs, is near 0.16 up 30% from the lows in March, but still a ways away from our 0.21 target.
Bigger picture, I still think interest rates stay down. Economists continue to get this wrong and since they don’t actually put money to work, they keep making the same wrong call over and over again. Meanwhile, the fed fund futures market which has been dead on this whole time continues to point to low rates. They are currently pricing in just a 46% probability of a rate hike at the late October meeting. I’m still in the camp, like I have been, that they do nothing this year.
Coal is an area that looks interesting down here. As these beat up sectors like Energy, Base Metals and Emerging Markets mean revert to the upside, Coal has participated a little bit but not as much as the others. I think we can see significant upside from some of these coal stocks. We’re paying close attention to this space entering the middle third of the year.
The Agribusiness sector has really caught my eye. When you look at a sector ETF like $MOO which seeks to track to Market Vectors Global Agribusiness Index, it’s hard to find a nicer base out there. Look at this index on multiple timeframes and tell me that a breakout isn’t going to be extremely powerful. The only thing that has held me back is the flat 200 day and 200 week moving averages. If these smoothing mechanisms can start to slope up, we want to be all over this space, particularly from a structural perspective. This index is loaded up in agricultural stocks like John Deere, Agrium, Monstanto, Potash, etc. This sector has my attention.
Globally, I’d say that a big theme is countries hitting our upside targets. When you look at China, Japan, Hong Kong, Philippines, Malaysia, Australia and Vietnam, they have already reached our objectives. So at this point, it’s hard to find good entries globally. I think a lot of easy money has been made around the world, so it’s hard to put new money to work here. I’d say one area we are looking at closely that has yet to take off on us is Taiwan. We’ll be watching these guys closely this month as their long-term smoothing mechanisms begin to slope up.
Finally Natural Gas is an interesting area we want to watch. We are coming off bearish extremes in sentiment that we haven’t seen since 2002. Meanwhile, the Commercial Hedgers, who we consider to be “the smart money”, has the most net long exposure that we’ve ever seen. These factors accompanied by bullish momentum divergences on multiple timeframes point to a mean reversion here to around $3.40. With prices currently under $2.80, this risk/reward favors the bulls. We’re not in but will be looking for entry points in the coming weeks.
That’s what’s going on in my head.
What are you guys thinking here?
***
Click Here for more information on our Premium Technical Research Packages
Tags: $SPY $DJIA $NG_F $UNG $USO $CL_F $ZB_F $TLT $TNX $MOO $MON $MOS $DE $AGU $POT $KOL $UUP $DX_F $6C_F $USDCAD $FXC $XLE $EEM $VNM $FXI $DXJ $EWM $EPHE $EWH $KOL $BTU
MOO is Looking Beefy These Days
One of the big themes for us this year has been to stay on the long side of the Commodities market . Coming into 2014, stocks were generally an asset class that we wanted to avoid on an absolute basis, but since commodities had essentially become the forgotten asset class, we felt it was where we preferred to be.
Now, within that commodities space, the strength has really come from the agricultural names rather than the base metals. Look at the chart below that shows the year-to-date performance of the Ags vs the Base metals:
This is a fascinating development that points us towards the demand for agricultural names. Call it a coincidence perhaps, but the Agribusiness ETF is setting up very nicely as well.
Take a look at the weekly chart of $MOO where we can see a steady series of higher lows since 2010. Meanwhile, prices continue to bump up against this overhead supply. The more times that a level is tested, the higher the likelihood that it breaks:
If you look a little bit closer, we can see some interesting developments in the short-term as well. First we have a nice clean downtrend line from the highs last January. Earlier this year we had a temporary breakdown back below that downtrend line. Do you see how quickly it recovered to head back up towards this $54.50 resistance?
I love it when longs get stopped and then have to get back in. This is how some of my favorite squeezes develop. We’re looking for a breakout above this key level as a signal that the sellers have dried up.
The Agribusiness names probably stand out the most on a relative basis. Here is a chart showing the MOO/SPY spread getting crushed all of last year. But with momentum already putting in higher lows, we are now waiting for a bullish divergence confirmation. In my opinion, we have this once we’re above 293.
I’m still a big fan of our investing themes for this year. We’re sticking with commodities, sticking with bonds, and trying to stay away from stocks. I think there are some individual less correlated names that can do well, but for the most part I’d rather own stocks on a relative basis.
The Agribusiness space is one area that definitely stands out. Plus, it fits right in to our bullish thesis about commodities. Here are some the biggest holdings for the ETF broken down by percentage of the fund:
REGISTER HERE for more information on how to access weekly updates on Agribusiness and the rest of the US stock market sectors.
Tags: $MOO $SPY $DBA $DBB $SYT $MON $DE $POT $ADM $MOS $CF $AGU