From the desk of Tom Bruni @BruniCharting

We look at a lot of charts every week, so it's not surprising that we often come across charts that look "too simple."

A setup we've seen thousands of times or a trend that's reaffirmed itself time and time again, yet I always find myself being skeptical of a chart that looks textbook in nature.

Today I want to take a look at one of those charts.

From the desk of Tom Bruni @BruniCharting

New Mystery Chart!

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?

We've all been there and we've all seen others do it to. We get one data point and then all of sudden we're drawing direct conclusions based on that number. Think about how silly it sounds to make decisions based on a government report or even single chart or "technical pattern".

The first thing we need to do is take a deep breathe (We live better when we're breathing). Then we want to ask ourselves, "Ok, this is new data. How does this fit within the context of all the other data points". We also want to identify how much weight we want to put on this particular data point.

It's funny, when I first started studying for Sommelier exams, I caught myself doing the same thing. Instead of looking at the wine, smelling it, tasting it, thinking about what it could possibly be and then coming up with a guess, I was already making guesses just by looking at it. Light body? Pinot Noir!!! Heavy tannin? Napa Cab!!! Low acid white? Viogner all day baby! Wrong, Wrong and Wrong again!

I was making the same mistake people in the markets do every day....

From the desk of Tom Bruni @BruniCharting

The TSX Composite is peaking its head out above resistance and into the fresh air of all-time highs, but can the recent strength continue?

Today we're looking for answers in two sectors that matter, Financials and Energy, which account for roughly 50% of the index's weighting.

First off, here's the TSX Composite Index breaking to new all-time highs, slightly exceeding its former highs of 16,650. Momentum has yet to get overbought, but if prices are above that level then we need to be erring on the long side with an upside objective of 18,300 over the next 6-12 months.

Click on chart to enlarge view.

Financials make up a third of the TSX Composite and look to be resolving from a 21-month base that began in January 2018. It's had several attempts at this, but this weekly close above its downtrend line is more decisive of a breakout than we've seen in the past.

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One of my favorite parts of living in Sonoma, CA is going to the local market. I'm right in the heart of wine country so anything protein or produce is going to be off the charts. On the way out of the store on weekends and/or early in the week, it gives me a chance to glance at the papers and magazines. This happens much less frequently these days vs when I lived in New York City and could catch a peek at some of the cover stories every day and usually multiple times on every block.

So this weekend I'm walking out of the store double fisting sea bass (on my way to make Greek Carpaccio), and caught a quick glance at the Barron's cover story which suggested selling Railroad stocks! I'm certainly not going to take the time to read what it says, but I saw enough to turn it into a blog post explaining why I want to take the other side. To be clear, I don't mean to pick on Barron's. They're a legendary publication and quote me regularly. But that doesn't mean we have to agree all the time.

Here is this weekend's cover, for those who haven't seen it:

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Raoul Pal is someone whose work I've admired for years, both for his global macro perspective on the markets and the amazing job he and his team have done with Real Vision. I like how they've removed a lot of the conflicts of interest that come with traditional media reporting and the sensationalizing that comes along as a result.

As a Macro Analyst, he does a lot of intermarket, or "cross-asset", analysis. Raoul and I see the world through a similar lens. One area where we differ is in our experiences throughout our careers and how that's shaped our view points and biases. I really enjoyed that part of the conversation. As far as current markets are concerned, Raoul thinks that negative rates in the U.S. are a real...

When was the last time Small-caps were not a mess? At least a year now right?

The bearish argument has been that small-caps (and others) are underperforming the large-cap stocks and therefore, the divergence is a warning signal that the market is about to fall apart. Along the way, I've asked the question,

What if we get rotation into small-caps rather than the rotation out of large-caps that you keep promising me?"

In other words, instead of the last ones finally falling, what if the stocks down in the dumps get their act together and start playing catch-up?

What does the market look like in that scenario?

Well, I'm still in the camp that we see the latter, rotation into small-caps, not the former where the S&P500 crashes and we go into recession. Here are small-caps relative to large-caps. If we are going to start to see outperformance from the little guys, this would certainly be a logical place for it to start:

Notice how when this ratio bottomed...

If you've been in our world long enough you've heard someone say, "Technical Analysis Is Voodoo". As far as I'm concerned, the more people who think that the better it is for us! As Technicians we are analyzing the behavior of the market and its participants. Our human emotions are driven by fear and greed and therefore markets trend, by nature. This is why Technical Analysis works. Today I sit down with Sebastian, the wine maker at Rancho Maria Winery in Sonoma, CA, to discuss this very topic.

From the desk of Tom Bruni @BruniCharting

There are a lot of messy charts out there, but we've been discussing the importance of having a global perspective and using weekly/monthly charts to stay focused on structural trends as opposed to the day to day noise/chop we've been experiencing.

Today we want to look at an area showing relative strength that's still offering opportunities for those who need to put cash to work.

This is not just a Stock Market, this is a "Market of Stocks". And not just Stocks from America, but Stocks all over the world. Stocks don't move up and down because of what is happening in New York or Washington DC. They move based on the supply and demand dynamics for the asset globally. To suggest otherwise is irresponsible.

Let's look around the world, because it's the right the thing to do. And let's see how stocks look globally, rather than be narrow minded into thinking the world revolves around what happens within US borders. 

Daily charts get a lot of love. I certainly preach the value of monthly charts every 30 days or so. But the weekly charts, ladies in gentlemen....the Weekly Charts, allow us to see through the day-to-day noise, but keeps us within an intermediate-term time horizon. On weekend mornings some people read the newspaper with their coffee. I go through my weekly charts.

Here are a few that stood out in the United States this week:

Connie Brown is the author of one of the first books I ever read on Technical Analysis. She was the one who inspired me to use Momentum as a supplement to price behavior, particularly the Relative Strength Index (RSI). It was Connie Brown who taught me how to think outside the box and question the default settings on traditional charting software. It's that next level thinking that has helped me grow throughout my career. It is a real treat for me to have her on the podcast and I think she is a great compliment to some of the other guests we've had on over the years. In this conversation we go back to the stock market panics of the 1800s, go over different global indexes and how to use them to make decisions in our own markets. If you're interested in Technical Analysis at all and want to learn how to think about things a little differently, this is the podcast episode for you!