From the desk of Tom Bruni @BruniCharting

For the last few weeks I've been writing in our notes to Institutional clients and internally to our team about the slow rotation into Cyber, and last week we saw that trend accelerate to the upside.

I was down in San Francisco Friday afternoon shopping for a tuxedo for my wedding in a few months. Whenever I'm in the city I like to get Chinese food and swing by the tv networks and say hi. Friday I got to do both.

At Allstarcharts we incorporate what we call a, "Top/Down Approach". To us, this means we start with the broader picture and analyze all of the Indexes around the world. Only then do we dive into our own country or the country in question. This is where we try and identify the trends in the S&P500, Dow Jones Industrial Average and many others. Next we break it down to the sector and industry level like Healthcare, Banks or Technology. Finally when the relative strength and momentum line up in a particular group of stocks, that's when we try and find the best risk vs reward opportunities available to express a given theme.

Here is the video in full:

For me, it's not just the S&P500 or the Dow Jones Industrial Average. This is a market of stocks and I think recognizing what stocks themselves are doing is just as important as identifying the trends of the major indexes. By recognizing the behavior of some of the biggest components in the market, we can approach it from a more informed position.

There are 3 stocks in particular that stood out in my Monthly Chart review this week. I always say it, this exercise which I only perform 12 times per year at the end of each month, is the most valuable part of my entire process. There is no question. It forces us to take a step back and identify the primary trends.

These are the charts that stood out:

As I was updating our Monthly Chartbook today for members, one theme that stuck out clear as day is that there are really two separate markets in Indian Stocks right now.

Tuesday I posted a mystery chart and asked you all to let me know what you would do. Buy, sell, or do nothing. Most of you agreed with me it looked like a structural breakdown that we should be selling as long as prices are below support.

So today I want to reveal the full chart and share why I feel it's relevant.

Coming into the year, the most important chart I was watching was the US Dollar. As far as risk appetite was concerned, I felt the Dollar would be a great tell. The way I saw it, the Dollar rallied throughout 2018 to achieve its upside objective and then broke the uptrend line from those former lows. If we were to just rip through those key levels without at least some kind of pause or consolidation, it would most likely be because of a tremendous flight to safety. Stocks would probably be doing poorly under those conditions.

But flip that thesis upside down, and a weaker Dollar would most likely mean strength in stocks. This is exactly what we've seen throughout January = A weaker Dollar and higher stock prices:

This week we're back with another Mystery Chart.

For those new to the exercise, we take a chart of interest and eliminate the x and y-axes and and all labels eliminated to minimize bias. 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 to think about what you would do right now. Buy, Sell, or Do Nothing?

For me, price is the most important technical indicator. Everything after that is just a supplement to actual price behavior. In that group of supplements is Momentum. My oscillator of choice is the RSI, or the "Relative Strength Index". I use this indicator in a variety of ways, but today I wanted to show you an easy trick to quickly identify whether momentum is in a bullish range or a bearish range:

We live in a world where kids get 7th place trophies. It's embarrassing.

As my friend Phil Pearlman said in one of our recent podcast episodes, "If my kid ever gets one of those, I'll make him throw it away".  

What's wrong with taking the loss, learning to live with it, and then moving on?

In October, Dr. Brett Steenbarger shared some of his thoughts with us on visualizing yourself taking the loss, before even entering into an investment. Already going through that "pain" in your head makes the loss easier to accept in the future if/when we are wrong.

You know what is not a characteristic of a downtrend? All-time highs!

Friday afternoon, the Medical Equipment Index went out at new all-time weekly closing highs relative to the S&P500. We look to relative strength as a leading or coincident indicator for stocks. This sector's behavior is no different.