When trading against the primary trend, there are a few things we look for to define our risk and raise our probability of success.

We outlined them in a post a while back, but they essentially boil down to the following:

1. Our downside price target has been met.
2. Prices undercut that price target and quickly reversed.
3. Momentum diverged positively as prices made a new low.
4. Prices are very extended from their mean (200-day moving average).
5. Quick follow-through confirmed the supply/demand imbalance.
6. Short interest in the stock (not required, but amplifies move).

We are now seeing a few potential opportunities given that stocks have been hit, some harder than others, over the last few weeks.

From the desk of Tom Bruni @BruniCharting

Wednesday's Mystery Chart is one of my favorite right now, so thank you everyone for your feedback and participation.

I received a lot of answers, but most of you were skeptical of the breakout and wanted to see more before getting involved. A few others wanted to be long with a tight stop and few, if any, were sellers.

With that as our backdrop, let's get into it.

The actual chart was the ratio of the Insurance subsector ($IAK) relative to the S&P 500, which is breaking out to 11-month highs as momentum gets overbought for the first time in nearly 2 years.

To me this looks like a textbook trend reversal, so while there may be some backing and filling over the near-term, Insurance stocks look set to outperform over the intermediate/long-term.

Click on chart to enlarge view.

From the desk of Tom Bruni @BruniCharting

The trend is your friend...but what do we do if there is no trend?

Paul Ciana and I go way back to 2006 when him and I were studying for the CMT exams together. Today, Paul is the Chief FICC Technical Strategist at Bank of America Merrill Lynch Global Research. In English, that means everything outside of equities. It's nice to see your friends succeed and watching him crush it is definitely one for the good guys.

From the desk of Tom Bruni @BruniCharting

I couldn't help but see many of the same folks who were happy about Trump's "Trade Deal" tweets when they drove the stock market higher complaining as his tweets sent Futures lower on Sunday night and again today after the bell.

I thought this might be a good time to remind ourselves of something.

The Pharma Sector had been improving from a structural perspective, but recent action and breadth may be suggesting the space is falling ill again.

Let's examine the evidence.

With the Chinese Internet Index closing at new 7-month highs this week, have we seen the move already, or are we just getting started?

One thing we know for sure by studying history is that stock prices trend. That's why Technical Analysis works. These tools help us identify those trends. Many academics will tell you that these consistent series of higher highs and higher lows over time are just random. The truth is you can show these charts to a 5 year old and the kid will tell you that yes, this stock is going up, or no this stock is going down. You can even argue that a trend is sideways, but that is trend recognition nonetheless.

It's very clear that markets trend, particularly stocks. They go up over time and they go down over time. A stock making new highs has a higher likelihood of continuing to make new highs vs turning around and beginning a new trend. An object in motion tends to stay in motion, is how Newton taught us. It's the same in stocks, which are driven by e-motion. (See what I did there?)

Last month price finally confirmed many of the divergences we were seeing under the surface and stocks began to correct...yet the Nifty 50 is sitting just shy of its all-time high.

What gives?

From the desk of Tom Bruni @BruniCharting

Over the last two months we've been pointing to many divergences in breadth and momentum, as well as intermarket relationships that add to the mixed near-term signals we continue to see around the globe.

Last week I compared the current environment in US Stocks to that of India's a month ago saying the stage was set, but that all these divergences needed price confirmation before they become actionable.

Yesterday we got new Monthly Candlesticks, so this post will outline a few of the major changes since last month.

From the desk of Tom Bruni @BruniCharting

Canada, like a few other Major Indexes from around the globe, continues to churn around all-time highs. So which way will it resolve?

Let's go sector by sector and see what the weight of the evidence suggests, just like JC did for US Stocks.

First, let's start with the TSX Composite, which continues to hover near its 2018 highs as momentum diverges. After a ~20% rally off the December lows and the presence of a flat 200-day, it would be healthy to see some consolidation at current levels before breaking out

Click on chart to enlarge view.