I get asked a lot about Fibonacci and why I use it so often. If by now I haven't made that perfectly obvious, the reason we use it is because it works! Fibonacci levels help us set price targets and, most importantly, manage risk. The market tends to respect these levels, so it would be foolish for us to ignore them.
In our NEW Charting School, I explain exactly how I calculate these levels and walk you through a bunch of real life examples where they helped us over the years. You can watch Lesson 1 here for Free, and then decide if you'd like to continue with the rest of the course.
Today I want to walk you through the process of analyzing shares of Abbott Labs. But first, why Abbott Labs? Why am I interested in this name?
Every week we publish performance tables for a variety of different asset classes and categories along with commentary on each.
Despite some volatility in the second half, risk assets continued their steady march higher last week. The broadening participation from Equities was again evident as every major US and Global Index was higher with the exception of Dow Utilities $DJU.
We've written extensively about the strongest areas and those first to reclaim their highs. In this post, we'll highlight a handful of Equity ETFs/Indexes which are at or just beneath fresh highs. Whether these areas work through their overhead supply or get rejected at these key levels will provide important information into the strength and durability of the current rally.
Let's dive right in and take a look at our Sector SPDR ETF table.
In early May we outlined the "Five Bull Market Barometers" we're watching to identify the beginning of a new bull market in stocks.
If you haven't read our initial post linked above, we'd encourage you to check it out so you understand what the rationale behind these five indicators is.
Now, let's see where we stand after another strong week in the market.
Contrary to popular belief, Small and Mid-Cap stocks do not always provide better returns than Large-Cap stocks.
In academia, the thesis is that these "riskier" Small and Mid-Cap stocks should provide a higher potential return than more mature "Large-Cap" stocks. If they didn't, then rational investors would not own them because they're not being adequately compensated for the risk they're taking.
In the real world, we know that this theory is absolute nonsense. Instead of the consistent outperformance from the SMID (Small/Mid-Cap) segment of the market, we see periods of outperformance, periods of in-line performance, and performance of underperformance.
Since 2018 the SMID market-cap segments have been absolutely clobbered, but the weight of the evidence is suggesting that we may be at a major inflection point and SMID stocks are beginning a period of long-term outperformance.
Here we're going to explore the SMID resurgence thesis, what it would mean for Equities as an asset class, and how we're taking advantage of it.
A few week's ago we profiled the strength in Biotech and highlighted the Genomics space as one of the top-performing industry groups. We said we were looking for some consolidation in these areas in the coming weeks and that if and when prices resolved higher these would be areas we'd look to for long opportunities.
In this post, we'll highlight our top-down approach to look into the Biotech space and offer some trade ideas. Then we'll drill further down into Genomics, provide an update on what we're seeing there, and share some setups in holdings of the ARK Genomic Revolution ETF $ARKG.
We talk a lot about the importance of secular leaders. More often than not these groups have a relationship to Technology, regardless of whether they are classified as a Technology stock or not. Tech is everywhere today.
The last time a sector was so pervasive would have to be Industrials way back in the mid-1900's. One could argue Financials had their time in the sun too, but that was short-lived and we all remember how it ended.
Industrials may not be as important as they once were, but they are still important.
I'm fortunate to have a lot of smart friends who are experts on the stock market. In some cases they're traders, or portfolio managers, analysts, financial advisors and best-selling authors. I get to have incredibly insightful conversations with my friends and colleagues every single day. But I understand that most people don't.
So today I'd like to share a video of a conversation I had yesterday with New York City Trader Kim Sokoloff, and about half way through my buddy Joe Fahmy also joined the chat. We discussed process, we talked about a few trade ideas we liked and just had an overall good time catching up.
These are the conversations I'm having regularly. I hope this gives you some insight as to how much I get to learn from my friends:
In mid-April, we posted a list of 20 key chart levels we were monitoring in some of the most important assets around the world. We've used this as a risk-gauge to measure the internal strength or weakness of the market in the time since.
The list started at 60% bullish, never fell below 50%, and has been stuck at 90% with the same two bearish hold-outs for the past month now. The list has grown consistently more bullish since we began tracking it as more charts continued to break above our levels.
Since the end of May, 18 of the 20 items have been in bullish territory and many have run a good amount from our risk-levels. With the strongest stocks and indexes making new all-time highs and confirming this bullish outlook, prices have spoken and it's time we retire our bull market checklist.
Traditionally, we've approached the market using a top/down approach. In other words, we start by looking at stocks globally, the intermarket relationships between them all, and only then do we come to the U.S. and analyze the Indexes, then the sectors and ultimately we drill down to individual stocks. But all of those opportunities in stocks come within the framework of all the other analysis we've done to guide us into those particular names.
With few exceptions, this is our approach. And it's worked well because this process helps us identify the direction of primary trends, and we err in that direction. This keeps the probabilities of success on our side, and not just the favorable risk vs reward that we always harp on.
The IBD 50 has been a great universe of stocks, but it has an earnings and sales growth component to it, so that limits the list. And quite frankly, I couldn't give a damn how much money a company makes or loses. That isn't my problem.
Last night was our Live Video Conference Call that I host for Premium Members every month. We went over the entire global macro landscape and then drilled down to individual stocks that I think are the best vehicles to profit in the current environment.
One of the areas we continue to like, and continues to pay well, is Internet Retail. The relative strength and positive momentum coming out of these stocks has been off the charts for months.
A nice clean setup in the space is Peloton. I like how prices have been consolidating below their 161.8% extension and ready for their next leg higher:
