Wall Street is a game of relative performance and we each are tasked with our own mandates/constraints in managing our portfolios.
The good news is that even when the market is a hot mess on an absolute basis, there are still plenty of ways to find performance within the context of those constraints.
If you need to have most of your capital allocated most of the time, then your focus is on either avoiding/shorting areas of relative weakness and owning areas of relative strength.
If you have the flexibility to raise cash and go to the beach or have short exposure on your books, that works too.
Two weeks ago I was scheduled to film two segments for Real Vision and the experience brought up a good topic that I've been meaning to write about using my personal experience; Perfectionism.
The night before I was supposed to film the segments I didn't get much sleep, hadn't exercised in a few days, and just wasn't feeling 100%. Needless to say, these were not the conditions I'd prefer for important filming.*
Regardless, I'd agreed to do it and I needed to show up and do the work.
Now that I've had time to reflect, let's see what perfectionism, failure, and fear of "shipping" have got to do with that experience.
One of the hardest things to do in life and in markets is admitting you don't know. But when you're only in the market to make money, and not to be right, saying I don't know can often be the best answer.
That's why I put out a post titled "Relatively...Confused" just two days ago because when I go through my chartbooks I see extended themes that are not offering great reward/risk opportunities right now.
There are trends people tend to pick up on indirectly, usually by looking at individual stock charts or ETFs on an absolute basis, seeing the relative strength/weakness, and connecting the dots.
See something in one chart; it may not be all that special. See it in a lot of charts from the same area of the market...you're usually onto something.
That's the indirect way, but if we look at a trend directly, we can get a better feel for the exact strength of that underlying trend/theme.
In this post, I want to highlight a few trends that I know people are aware of, but may not realize their severity.
We've been writing about the lack of trend in the Major Indices and highlighting some relative strength in places like Software and Insurance, but overall signals remain mixed.
This morning I set out to write another post about areas showing relative strength, hoping to find a clean theme that the most actionable stock setups fit within.
What I found can be boiled down to the length of two tweets.
"Going through the S&P 1500 I see a number of actionable names on the long side, but they don't all fit a theme. They're all from different areas of the market. Where there are themes I see a lot of extended names and unattractive entries."
and
"I can see that the path of least resistance is higher in a lot of names, but that doesn't mean that current levels offer an attractive entry."
Last week I sat down with Justine Underhill for Real Vision's "Trade Ideas" show to discuss a tactical trading opportunity in Palladium and a longer-term play in the Insurance industry.
These are themes I've shared with our Institutional Clients over the last few weeks. I hope you find some value in them.
Wednesday's Mystery Chart is one of my favorite charts, so thank you everyone for your feedback and participation.
I received a lot of answers, but most of you were buyers of this recent pullback, while others were waiting to see if prices reacted positively to support before jumping in. Not many of you were sellers.
Like a fly to honey, I'm always attracted to asymmetric opportunities that offer limited risk and the potential for unlimited gains. Trading options allows us to quite literally create these types of risk/reward opportunities every day. It's built into the very structure of your basic call or put option! And when we can spot a stock chart that offers us a little bit of an edge on the future direction of prices, it is time to take action.
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. It can even be inverted or a custom index.
The point here is to not guess what it is, but instead think about what you would do right now.Buy,Sell, or Do Nothing?
We hear this term a lot: "Overhead Supply". But what does that mean exactly?
Well, I'll tell you what it means to me. When I look at today's stock market, I see stocks rallying throughout 2017 and running into resistance, or more selling than buying, in January of 2018. After some distribution, stocks rallied once again late into the 3rd quarter last year, only fail and sell off. That was a beautiful sell-off in stocks that many of us enjoyed very much.
Fast forward to 2019 and we've had a killer rally in stocks that has brought us back to where this overhead supply party first got started early last year. This is now the 3rd attempt and failure for stocks. And when I say stocks, I don't just mean the S&P500 or Dow Jones Industrial Average, I'm referring to stocks as an asset class.
People love to hear a good story. We have an evolutionary desire to gossip and be told stories even if we know they're untrue. As Sapiens, it's important to know this about ourselves. But you know who definitely knows it? The media. And they're going to use that desire against you every single day for their own profit. They will tell you stories all day every day as long as you're willing to listen. They're so thirsty for your attention that they'll tell you anything just so they can sell ads to their precious sponsors. It's their job to make the noise. It's our job to ignore it.
Today, I'm going to show you the chart that actually tells the real story about what is going on in today's market. I comb through thousands of charts a week and I can tell you for a fact that there is one underlying theme that I'm seeing across the board: Stocks, Sectors and Indexes, and that is the Overhead supply we've been stuck below since early last year.
