From the desk of Tom Bruni @BruniCharting

There's a saying among market participants that "all gaps need to be filled" or "all gaps are eventually filled", but as with most market generalizations, this saying shouldn't be taken at face value.

This post is going to discuss the four types of gaps and explain why this phrase is not something any market participant should take seriously.

A conversation with Arun Chopra is one that makes you smarter. That's how I see it. Arun has formal training as both a CFA Charterholder and a CMT. He has helped produce award winning films at the Sundance Film Festival and he's on the same journey as us: to make money in the market. He uses a combination of global macro, technical and sentiment indicators that he is working on putting into a more quantitative model. Picking his brain about the process and his experiences in this endeavor was really enlightening. In this episode we discuss current markets, sector rotation, credit spreads widening and the possibilities for the US Stock Market Indexes to break to new lows. I really enjoyed this discussion with Arun. I always do.

From the desk of Tom Bruni @BruniCharting

We always hear the phrases "fading strength" or "selling into strength" from market participants, but what does that mean from a practical standpoint? How do you know what to sell? When do you sell?

In light of those questions, this week's "Chart of the Week" is going to help provide some context around the types of characteristics we look for when choosing stocks to fade.

From the desk of Tom Bruni @BruniCharting

This week's "Chart of the Week" answers the question about what characteristics determine the stocks we're fading strength in, so this premium post will outline the best setups I found during my review of the S&P 1500. If you haven't read the other post, click here to do so as it will provide more context around these trade ideas.

Over the last three weeks Sun Pharmaceuticals has been doing its best Deutsche Bank impression, losing roughly a third of its value and trading at levels not seen since March 2013.

As the largest component of the Nifty Pharmaceuticals Index this performance has been a major drag on the index, however, equally-weighted charts can offer us a much better read of the sector's health.

This post is a continuation of our "Free Chart of The Week", which focused on the use of an equally-weighted Pharmaceuticals Index to make the case that the sector is in better health than the cap-weighted index suggests.

In this post, we'll use that information to identify the stocks in this sector offering us the best reward/risk opportunities.

This past weekend we got new Monthly Charts, and overall the themes we discussed last month are very similar. With that being said, we'll use this post to discuss a few notable developments.

I've seen way too much at this point to underestimate what the market is capable of doing. People call me all the time and say, "JC crazy market huh?" or "Did you see that crazy move in XYZ". Yea I saw it. So what? As Jay-Z said in his latest album,

if everybody's crazy, you're the one that's insane". 

How high can a stock go? Much higher than you think. How low can a stock go? Zero. How low can your account go? In the negatives where you actually owe money. That's the deal we make when we enter the marketplace.

So there is being overly dramatic and there is being realistic. We've seen these clowns calling for market crashes since a month after the last one was over. They prey on vulnerable hard working citizens preaching the end of the world and they make a ton of money doing it. They're terrible people.

It's my job as a market participant to identify the risk that is on the table at any given time. Until just recently, the risk in U.S. Stocks had been higher for years. Not being aggressively long, was the real risk in my opinion. All of that...

How do you feel about a little buy-the-dip action in the crude oil space? Given that there's juicy options premiums to sell into here, it is certainly worth a discussion.

It has been quite a one-way ride lower for crude since early October, but the All Star Charts team may have noticed something that might make it worthwhile to dip our toes into these slightly contaminated waters:

In addition to improvements in sentiment, we’re seeing bullish momentum divergences being formed and/or confirmed across the board in the Energy Commodities themselves, as well as their corresponding US Equity Sectors.

This not only signals some potential exhaustion on the side of sellers, but more importantly, it allows us to define our risk on the long side which we haven’t been able to do since prices broke back below their July highs.

You hear it all the time, "Cash is King". But we forget that it really can be. Not all the time, very few times in fact, but cash does serve a great purpose.

There are a lot of institutions that are not allowed to go to cash, as part of their mandate. The majority of investors, however, do have that option. Why not use it?

You're going to see a lot of the passive investing community advise against cash. "Market sell-offs are an opportunity to buy more at lower levels", they say. "You're not disciplined or smart enough to get back in", they preach. "Just buy and hold and everything will be ok". It's all based off this theory that the market always goes up. I guess if you trust data based off the tiny sample sizes that we have, you'll believe anything.

From the desk of Tom Bruni @BruniCharting

Crude Oil is down roughly 35% over the last two months as record bullish sentiment unwound and prices fell in what was essentially a straight line. There hasn't been any reason to bottom-fish this market, but today we received our first indication that a short-term bottom may be in.

If you're bullish coming out of this Autumn's correction, then you're betting that recent lows in the indexes mark significant bottoms.

While we at All Star Charts don't believe Bulls are out of the woods just yet, we're of the view that if stocks can manage to trade in a sideways range for any length of time, that might be long term bullish for stocks and the economy in general.

With this as a backdrop, believers of the bull case should look at Walmart $WMT as a barometer of the American consumer and the willingness of investors to step in and take some risk.

It's a market of stocks, after all. The indexes are one thing, but the components that drive them are another. Last week we laid out a list of the stocks we wanted to be buying for a December rally. The idea was to get involved with stocks already working, rather than trying to get cute and bottom fish the underperformers.

We'll see how that works out. In the meantime, let's take a look at market breadth.

Whenever in doubt, zoom out. Monthly charts are a great way to do that. On November 30th we got new daily, weekly and monthly candles. This is a lot of new data that we have to work with.

Here is what I'm seeing out there:

We're gonna throw an idea out there for the bulls. They aren't dead yet, apparently. And we don't need to look too far before we come across the healthcare sector and stocks like Pfizer $PFE and UnitedHealth Group $UNH that are at or near all-time highs.

During our recent All Star Options conference call, JC brought our attention to this sector and it definitely caught my attention. With the broader markets kind of "stuck in the muck" right now -- not really offering any clear indication of the next major move -- we might as well add some long exposure against a current portfolio of delta neutral and bearish open positions to help give us some balance.

The best idea on the table right now looks like $UNH. Here's how we're going to play it without risking too much...

The stock market has spoken and it seems clear that we’re stuck in between some pretty significant levels of support and resistance. This argues for more of a sideways mess type of a market vs a complete collapse, at least for now.

We’ve laid out some important prices where something more substantial would be possible. We’ve successfully held above those key prices. A few examples are Technology $XLK above the 2000 highs, Regional Banks $KRE & Broker Dealers $IAI above their respective 2007 highs. In the indexes, 2660 in the S&P500 is a big one. We’re not going to have a complete collapse if these assets are above those levels. It’s if and when we’re below them that the real problems could start.

All of this suggests that we’re in more of a sideways range type market, at least for now. In that environment, if we’re going to buy stocks, we want to buy strength. I don’t think it’s worth messing around looking for mean reversions. We want to buy what has already been working compared to the rest during the past 2 months of selling pressure.

A common theme discussed in this month's All Star Options conference call was the fact that many sectors, commodities, and stocks were in "messy" or "sloppy" sideways holding patterns right now. The selloff that began for stocks in early October and bled into early November seems to have abated somewhat for the time being, leaving many stocks with terrible looking charts offering no clues on direction.

But the price action has not been limited to just stocks -- bonds and commodities too all seem to be lost in the muck right now.

This might frustrate some, but these types of environments can be wonderful for delta neutral income strategies. And Gold $GLD is a perfect example of an instrument showing little commitment to any up or down directional movement.

This is the video recording of the December 2018 Conference Call for Members of All Star Options

It's the holiday season here in America and stocks are in a downtrend, or sideways trend at best. What does that mean for us as investors?

Welcome back! Thanksgiving week is past us and now we can focus on finishing out 2018 strong.

We don't feel like the market is setting up for any type of major bounce or reversal here or any time soon. We also are cognizant of the fact that US stocks have fallen a good way since early October and the risk for further downside from here is very high. However, you may accuse me of being sentimental, but the optimist in me doesn't think we will see any further scary downside from here through the Christmas/NYE holidays. May we break correction lows? Yes. But I don't expect any major dislocations before 2019. Of course, I've been wrong before and I'll happily eat humble pie again if I'm wrong here.

Either way, whether markets have another slide or if we just coast into the new year, it feels to me the Utilities space is a good place to hang out and collect some premium.

During our members-only conference call and our trade management post we discussed why a more neutral approach is best as we identify whether equities are going to consolidate at higher levels or begin to roll over again. We also discussed the importance of taking some profits quickly in an environment that produces whipsaws in both directions.

Over the last two weeks we've seen a number of our long ideas failing and more of our short ideas working, suggesting that lower prices are likely ahead in the short-term and that we should continue to err on the short side of stocks. This post will outline some of the evidence we're seeing supporting this thesis, as well as adding a number of short ideas to our trade list from October and November.

Over the years I've been asked this question a lot: "What do I do? Should I sell now?"

This is often accompanied by a story about how they bought a stock or asset and it went down in price instead of up. The blame usually goes to a financial advisor or local friend who gave them "the tip". They entered into the position without a plan and now they don't know what to do with their unrealized losses.

Happy Thanksgiving!

During our family's feast this year I'll be reflecting on my gratitude to each and every one of our subscribers, and to my team here at All Star Charts. I could not ask for a more engaged audience and a more top-notch group of analysts to work with. This year marks the maiden voyage of the All Star Options corner of the All Star Charts platform and the response from institutional and retail subscribers has exceeded my expectations and it makes me ever more motivated to continue crushing it for years to come for all of you.

Sincerely, thank you.

Now let's talk business...

This week we put an options spread trade on in Goldman Sachs $GS and it serves as a vivid reminder that we're not looking for perfection here. We're looking to follow a process.

I'm on the east coast this week for the Thanksgiving holiday so I came into the city to say hi to friends. Catherine Murray and I had a nice conversation on BNN Bloomberg about US Stocks, Interest Rates and what Credit Spreads are suggesting for overall risk appetite from institutions.

Here is the video in full: