It's been a while since we've had a conversation about new all-time lows for stocks. But this week we saw the Regional Bank Index Fund close at new all-time relative lows. This is the lowest they've ever been.
What's fascinating is how this is happening just as the Financials Index Fund is attempting to break out to new all-time highs, finally exceeding their 2007 peak before the financial crisis.
Here in this chart you can see the $XLF trying to finally get through those 2007 highs for the first time ever. But Regional Banks are not confirming these new highs. Neither is Momentum or Relative Strength.
Over the past month, Bonds are up a bunch as the collapse in Interest Rates has resumed. We jumped on board this bond trade last month and so far it's working.
Meanwhile, a majority of U.S. stocks are actually down over the past month. While the S&P500, Dow Industrials and Nasdaq100 have gone on to make new highs, the NYSE Advance-Decline line (stocks only) did not, Small-caps did not, Dow Transports did not, and a majority of individual stocks did not. It's only a minority of names doing the work, particularly large-cap stocks and some higher dividend paying areas like REITs and Utilities.
When you run the numbers, most stocks in the U.S. are down over the past month, with negative average and median returns for the Russell3000 components. It's the bonds that are up and I think they're just getting started.
As you guys know, we've had a much more defensive approach to the stock market over the past few weeks, especially compared to how bullish we had been for so long. There is a time to be big and aggressive and a time to be small and cash heavy. I believe we're currently in the latter of those two categories.
There was a nice diversity of responses. Many said they were anticipating a break of the support line and would get short against that level while others were buyers as long as prices held above it. But the majority took a neutral approach, preferring to wait for the current range to resolve before having a directional bias.
A sound argument could be made for any of these answers in my opinion, so with that as our backdrop let’s take a look at this week’s chart.
The ASC team is out with a piece calling for a potential short-term bottom in the Energy space. I'm liking some of the setups I'm seeing and I've got an options play to get us involved.
With Crude Oil down 25% over the last month and the rest of the Energy complex struggling in tandem, let's take a look at where it stands and where it could potentially head.
For those new to the exercise, we take a chart of interest and remove the x/y-axes and any other labels that would help identify it. The chart can be any security in any asset class on any timeframe on an absolute or relative basis. Maybe it’s a custom index or inverted, who knows!
We do all this to put aside the biases we have associated with this specific security/the market and come to a conclusion based solely on price.
You can guess what it is if you must, but the real value comes from sharing what you would do right now. Buy, Sell, or Do Nothing?
There is a lot going on in the market right now, not just in the U.S. but globally. The intermarket relationships between Bonds, Gold and the US Dollar are having a major impact on equities.
January is a month that gives us a lot more information than most other months throughout the year. We have the data now that we can use to help us identify primary trends.
Volatility is picking up. Daily swings are getting larger. I’ve seen this story before.
We discuss all of this and a lot more.
This is the video recording of the February 2020 Conference Call.
*NOTE: This Post and Video was originally intended for Premium Members of Allstarcharts Only. But due to the circumstances, we have unlocked it for everyone to watch and download the slides. We feel this can be used for educational purposes moving forward. Thank you for understanding.
This has already been a market environment the past few weeks where we've wanted to be selling Emerging Markets. But today we're getting more specific into Latin America and shorting Mecradolibre $MELI.
Remember, like every other stock we discuss, 95% of the reasons why we're choosing this stock has nothing to do with the chart of the stock itself. It's the other 4,999 charts we look at every week that collectively point to buying or selling a particular security. In this case, we're already sellers of Emerging Markets. The data suggests Latin America is one of the weaker links within EM, and $MELI just provides a clean risk vs reward to express this thesis.
Here is the chart showing Mecradolibre failing once again near this 677 level that has been trouble since last year. There is clearly still an overwhelming amount of supply here. The bet is that $MELI gets back down to 517, which would put it near the lower end of this multi-year range:
This week I sat down with Irusha Peiris of Investor's Business Daily to talk markets and life lessons.
I was invited on to the Investing with IBD Podcast where we discussed the current market environment, including US and International equities. We talked about interest rates and their intermarket relationships with other asset classes like currencies and commodities. Most importantly, in my opinion, I lay out 4 very critical levels, in 4 indexes specifically, that I think will be the biggest hurdles to jump over in order for stocks to continue higher.
