I know what you're thinking? A bearish play? In this market?
Believe it or not, there are some weak sectors out there, and there's a stock we're bearish on that may have just exhausted itself in a last-gasp dead-cat bounce which may be soon reverse and resume its downward trend.
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?
Annie Duke is the author of one of my favorite books, "Thinking In Bets". I often find myself recommending it to both colleagues and friends and family who aren't even in our business. While the book might be written by a poker player, and is somewhat about poker, it's really about the way we think, and this applies to market participation, but also life in general. It's a book I believe everyone should read, at least once.
In this Episode of Allstarcharts Weekly, Steve and I discuss the less talked about tenets of Dow Theory. Everyone always likes to talk about the Dow Jones Industrial Average either confirming or diverging from the Dow Jones Transportation Average. But what gets forgotten is that there are many more tenets like Closing Prices are the most important, Identifying the direction of the Primary Trends and The Market Discounting Everything. Check out JC's 5 Most Important Dow Theory Tenets
This day and age we have other areas just as important, or even more important, than a group of Railroads, like what Charlie had when he first wrote down his Tenets in the late 1800s. Today we also compare the Dow Jones Industrial Average to the Semiconductor and Homebuilders Indexes as well as incorporate a series of ratios with Consumer Staples and Financials. It's more of an "and" than an "or" for us when it comes to Dow Theory.
Healthcare is the latest of the American Sectors to break out to new all-time highs. I think Financials are next, but for today's conversation, let's focus on the task at hand: Healthcare is a space we want to own.
First of all, here is that breakout. It rarely gets cleaner than this:
Click on Charts to Zoom In
Another 35% of upside in this sector would be consistent with historical moves in the past and would be perfectly normal, as far as I'm concerned.
The bigger question, really, is which industry group is going to be the main driver?
The obvious choice appears to be Medical Devices. When all these stocks and sectors were churning sideways since early 2018, the relative strength was already here. You can't deny that. Look at this beauty:
Did you notice that the U.S. Financials Sector Index is just 3.5% away from its infamous all-time highs in 2007 before the financial crisis?
That's right, $XLF is approaching this level once again, for the 3rd time in almost 13 years. Is this finally going to be it? Are we really going to start a new bull market in Financials?
I think yes and I'm going to tell you why.
First here is the chart I'm referring to and its 3rd attempt to get through this level:
You can also watch this entire video for just $1 by clicking this link. In this short clip below, I show you 3 specific points throughout the presentation where
1) I discuss risk management techniques and how we will know soon if we're wrong on our thesis,
2) a specific ratio that is a coincident and, often times, a leading indicator for US Stocks, and
3) how we identify specific trade ideas using the top/down approach, with 2 ideas in particular that we want to take advantage of today.
If you look at a list of the best-performing stock markets in the world this year and over the last few, you'll see New Zealand towards the top of that list in both local currency and US Dollar terms.
With that said, today's Chart of The Week is focused on another New Zealand chart that's NOT equities.
Don't worry, we'll talk equities too for you non-currency traders.
I'm not saying I'm bullish on Disney because my family recently signed up to send them money every month for Disney+, but it certainly has me thinking about the tremendous new source of cashflow to be streaming into their coffers. That's got to be bullish, right?
Of course, at All Star Charts, all we ever follow around here is price so none of the above really matters, it just makes a nice story. But lo and behold, the $DIS chart sure is setting up for a continuation of what already is a pretty significant run:
We just got back from 6 days in India and I think it will add some value to give you some perspective on the kinds of things we learned. Sean McLaughlin is our Chief Options Strategist and had never been to Asia before. This was an eye opening experience for him and one that reiterated a lot of important things I noticed in my prior visits to Mumbai.
We attended a CMT Conference, we filmed a documentary on Indian Options Trading, we ate some of the best food this planet has to offer, we hung out with some of the nicest and coolest people know and got to learn a ton from everything around us. I love going to Mumbai and it’s so nice to see the rest of the gang enjoyed their time there as well.
