Warning: This aggressive strategy is only for those who are comfortable with risk and want to Bro Down ;)
In a previous post, I discussed using Vertical Spreads to roll long in-the-money calls up to protect profits while not giving up the dream of higher prices. Any time I'm holding long calls that are way in-the-money, this is a viable option to help me take money off the table -- freeing it up to be redeployed elsewhere -- but still leaves me a chance to participate if the stock continues moving higher (in the off-chance I didn't perfectly call the top /sarcasm).
I promised an aggressive cousin to this strategy and here it goes...
Remember Crypto Currencies? The conversations over Thanksgiving dinners in 2017 were really something. It feels like just yesterday we were still feeling the euphoria of the Crypto Craze.
So now what? What's happened since the epic 80%+ crash that destroyed the hopes and dreams of the greedy fools that fell for the 'get rich quick' appeal of the "new currency" (that wasn't really new at all)? Where is Bitcoin today?
Technical Analysis is the study of the behavior of the market, and therefore its participants. Investors from all over the world come to us for help identifying trends in stocks, bonds, commodities and currency markets. Both Individual investors and Professionals use All Star Charts for trade ideas, global macro analysis, sector rotation work, momentum, relative strength and important price levels for risk management.
When we have to be buying stocks, I'll be there talking about it. When we want to be more conservative and raise cash, I'll be there even louder! I'm fortunate that I'm friends with a lot of the best Technical Analysts in the world. Getting to chat with them regularly makes me a better investor, it keeps me open minded, and most importantly, it keeps me humble.
My friends are really really smart. I don't pretend to be as smart as some of them. My expertise is in bringing it all together and trying to solve the puzzle as best as I can. I'm lucky that I get to do what I love every day.
I want to make something perfectly clear: Semiconductors breaking out of a 6 month base to new all-time highs is historically not a characteristic of a downtrend for semi's, tech, or US Stocks as an asset class. These are facts. As go Chip stocks, so goes Tech. And in case you forgot, Technology is a quarter of the entire S&P500.
Feel free to argue against me on this. You'll lose. Semiconductors going up is NOT bearish for stocks. In fact, I can think of few things more bullish.
Here is a Monthly Chart of the PHLX Semiconductor Index $SOX breaking out to new all-time highs:
In this Episode of Allstarcharts Weekly, Steve and I talk about the underperformance of the S&P500 relative to both Gold and US Treasury Bonds. The big question I think worth asking is whether these are massive distribution patterns in US Stocks on a relative basis, or if these are just consolidations within an ongoing uptrend that has been in place for years already? If you're in the bear camp / recession coming crowd, then you would expect these tops to complete themselves to the downside. If you think stocks go on to make new all-time highs (I do), then these are not massive distribution patterns but just healthy consolidation instead.
How often does someone tell you to Remember to Buy In November? Probably not as often as you'll hear Sell in May and Go Away!
But what does this all mean? What are these silly nursery rhymes all about and why should we care? Or should we even care at all?
You'll hear even some of the smartest and most experience market participants dismiss market seasonality altogether, almost as if they're too good for it. Maybe they're scared of things they don't understand, like my 2 year old cousin gets when she's confused. Or maybe seasonality is not as intellectually satisfying to them as say something like, fed policy or trump impeachments.
Either way, we do care about seasonal trends at All Star Charts because they help us with both identifying market trends and risk management. Here's what US Stock Market Seasonality means to me:
We've been bullish precious metals since the 4th quarter last year and even coming into 2019. We're not gold bugs, thank goodness. The risk vs reward was just skewed in favor of the long side, for a variety of reasons.
One of those was the fact that commercial hedgers were actually net long. They're never net long, and literally always hedged. For me, these Commitment of Traders reports are usually just noise, EXCEPT when they're at extremes. We want to pay attention when the rubber-band is stretched. And so we did, and Gold ripped!
Now we have the opposite scenario. Commercial Hedgers last month had on their largest net short position in history (345,145 contracts):
Think about how well everything is going this year! The S&P500 is up almost 20%. Bonds are up 22% and even Gold is up 17%! Heck Bitcoin has more than doubled! Can things get any better than this???
How are you liking the day to day swings in the market? Is it too much for you? Go through this checklist and make sure these questions are answered before moving forward.
Today, I thought it would add value to take a step back and see what's happening in the market bigger picture. They love distracting you with noisy headlines, but the way we approach it is: Whenever In Doubt, Zoom Out!
Here's how we see things in Stocks bigger picture: