A Whoa Bottom Signal

The CBOE SKEW index measures the market's perception of tail risk one month out.  Wednesday, all of a sudden this indicator dropped to a level not seen in a year.  The last time we saw a reading this low:  The day of the October 2014 bottom.  

Is this a meaningful market low?  It could be.  I'm on high alert at this point.  If you missed it, check out some good reasons to be bullish.  We also saw some very interesting gap-ups to trade against across the board Wednesday.

Thanks for reading.  Trade 'em well!

Crowdsourced Intel: Why we should get long stocks

For what it's worth, I shared reasons i'm skeptical about investing in stocks right now.  I have no idea what the market is going to do, but it's always worth investigating both long and short cases.  In the last 24 hours, there has been plenty of interesting bullish evidence shared on StockTwits and Twitter.  Here's a look:

1.  Breadth and momentum divergences are clear via @MarkArbeter

2.  Q4 is the strongest of the year via @RyanDetrick

3.  The stocks that have held up the best are now cracking.  Large cap leaders like Apple, Facebook and Under Armour are starting to see break down in a big way.  Example:  Facebook has shed 10% in three trading days:

4.  Former market skeptics are getting bullish

5.  Bulls are getting emotionally worn down via @beckyhiu

Thanks for reading!

Appealing

Ok, I've got to admit it.  Some of these pullbacks in names on my watch list are getting appealing as investments.

That said, there are a few problems I see with the jumping into stocks for the 'long haul' soon.

1)  The stocks I want to own MOST haven't really been hit yet

2)  Leading momentum stocks can get hit for 40-70% losses.  Maybe some of the fundamental ideas we like have run their course (stale or flawed) and the appealing 20-30% corrections can get much worse.

3)  Breadth figures aren't at 'obvious' meaningful bottom levels.

4)  Everybody sees the appeal in buying every dip, still.

5)  The near to intermediate term outlook of earnings is not improving and possibly still worsening.  

This correction needs time, at the very least, to work itself out.  I'm not 'sure' of much in the markets, but this is clearly a period of vulnerability in stocks.  Patience will pay as this bear market plays out.  Remember, market bottoms form when smart investors step in and traders are sick and tired of buying weakness.

Thanks for reading!  Trade 'em well!

The greatest risks

The greatest risks to any trade or investment thesis are A) misjudgments and B) the ones you don't see coming.

I've recently shared the bullish case of gold miners.  Now there are cracks appearing technically.

I've completely misjudged the potential impact of mining and commodity trading giant Glencore's blow-up.  In 2014, it was Fortune's #10 largest company in the world!  The company is actively blowing up.  We don't know how this will play out and as technical traders, it really doesn't affect us.

What we do know is this overhang is yet another reason for investors to stay away from commodities in general.

Does this impact Gold's potential bottom?  Maybe.  Does it impact the weekly bullish divergences in many gold miner charts?  Again maybe, not yet and we can't know.  We've seen NO evidence the technical picture is damaged outside of a very short term time frame.

We do know the bearish harami candlestick setup in gold miner ETFs GDX and GDXJ confirmed lower.  It's possible, given the MACD placement and the continuous rejections at the falling 50 day moving average, a roll over is about to occur here.  That said, momentum is still neutral on a daily timeframe until it isn't.

This same setup is seen in Oil as well.

On a somewhat related note - it's never wise to have patience with formerly strongly green trading position that's turned red, particularly in a market this volatile.  As a rule of thumb, i've taken my entries from last week off the table.  It sucks missing a great profit taking opportunity, but oh well!

Trading is tough.  You need to have the right idea, the right time frame and the correct mental approach to really nail a home run.  I still believe this idea is still in the right ball park, but the time frame may be wrong.

Thanks for reading!

One thing I won't do

The one thing I won't do in the next few weeks is buy healthcare stocks.

This classic head and shoulders top pattern in healthcare providers stands out.  For whatever reason, last week healthcare became the new weakest group.  (Obviously the drug cost debate stands out, and costs are massively excessive across the entire industry).  Health care is also likely over-owned as it's been the best sector for years.

Nothing is guaranteed in markets, but i'm wary at best of this group and sector.

Trade 'em well!

A hunch

Are commodities near a bottom?  Maybe.  We're seeing a handful of signs that lead me to believe we're about to see a decent commodity bounce.  Here's a list:

Recent relative strength in oil and energy stocks.

Oil never even broke a support on this market push lower.

A strong reversal candle Thursday in Natural Gas.

Gold breaking out of a head and shoulders bottom after forming a higher low

A key reversal day in the Brazilian Real

Is this a short term bounce or something bigger?  Who knows, it varies depending on the market.  Maybe it's just a sign of dollar weakness in the next few days.  I just thought this is worth pointing out for the next few days move.

Thanks for reading, trade 'em well!

Some Second Level Thinking on Gold

First, a disclaimer.  I love gold, gold miners and the precious metals space as investments right now.  At the time of publish I own NUGT and JNUG.  I think the market is missing huge technical signs from the group.  Of course, a downtrending market and global currency war (even though the market has somewhat ignored that truth) help the fundamental case.  

Howard Marks has made the idea of 'second level thinking' infamous in his book and in his recent memo.   

Here are a couple of blurbs from the memo that really relate to investing in gold and precious metal space these days:

Common rhetoric as to why people don't like gold here is well, it's not acting like a safe haven asset during all this market volatility.  

Let's quickly think about why gold hasn't acted as a safe haven

- Oil's decline has been a top headline in the back half of summer.  Many commodity funds made up of Oil also own gold.  When those funds see outflows, they don't just sell oil, they sell everything.  

That said, Gold is outperforming the S&P 500 since early August when Gold bottomed.  Note the 200D MA has flattened out as well.  So yes, gold is acting like a safe haven, even though it isn't readily apparent to most market participants.

- It's the most despised asset class out there.  The precious metals space is the only group that hasn't paid to own during the massive post 2011 bull run.  Other than sophisticated investors noticing the technical bottoms and massively changing investment landscape, who the hell wants to run into the space with both hands?

As many great investors allude, if you want above average returns you have to think differently than the crowd.  That surely doesn't guarantee outperformance, but it sets you on the right course.  

What do you think, are the precious metals 

Thanks for reading, trade 'em well!  

Rotation Report: Simple is simple

There has been a lot of noise made about various sentiment statistics showing a rush out of stocks.  Whether it be fund cash levels, small futures trader positioning or the NAAIM numbers, it sounds like many traders are trying to make contrary arguments.  It's the same dynamic, just the opposite of what we see at the start of new up trends.  Frank Zorrila wrote an awesome post to this point.

The developing intermediate term trend is lower, and we very possibly have just ended a corrective rally.  It's easy to over-think, but the risk is clearly to the downside.

For numerous reads on Fed announcement implications and major moves setting up in the markets, check out this week's Top Trading Links.

U.S. Stocks

One indicator worth pointing out on the S&P 500 is the ease of movement indicator.  The market is moving lower much more easily than it is higher.  The velocity of the recent drop is much worse than anything we saw during the Financial Crisis.  So that's interesting.

What do I make of it?  This is a dangerous market IF it rolls below short term trend support.

Short term trend support:   

The other day I shared this post explaining why this ascending triangle breakout was high risk.

Are you prepared for a major move higher in long term treasuries?  Maybe you should be.  There could be a monster bottom forming here.  It's no given and YES it's jumping the gun, but sometimes you have to jump the gun in scenario based planning.  The symmetry is excellent.

The Dollar Yen is set for a huge move.  A look at @BartsCharts great work there:

I've mentioned on twitter that I built a short position in semiconductors.  My main target area is the high 47s in ETF SMH.  46 also stands out.

Can Energy ETF XLE hold above the short term moving averages?  It doesn't appear so, but this is the best effort it's had in five months.

Other Markets:

China is rolling over after backtesting a key pivot level.

Greece has significantly outperformed the global markets since their markets re-opened.  This chart is a lesson about what happens after an investment vehicle goes from 'front page fear factory news' to working through the 'crisis' behind the scenes.

Gold is back above the 10 week moving average as that MA starts to flatten out.  If you've followed my work, you know I love the precious metal space as a trade and an investment.  I particularly like the gold miners.  

I still can't get over this data point from Wristly.  They surveyed Apple Watch users and asked what they're using more and less than expected.  70% of users are using the activity tracker more than expected!  People are getting hooked on fitness tracking.  There is still a ton of money to be made in this space, whether it's via Fitbit, Apple, chip stocks or whatever.  I wrote up more on it recently.

Thanks for reading.  Trade 'em well!

Pattern context

Over the last week or two many folks have noticed the trend of higher lows and the flat ceiling on the S&P 500 futures.  Chartists call it an ascending triangle.

What nobody tells you about patterns is it's the context of the pattern's environment that tells us as much about what we need know as anything.

Here's a look at the recent action in the S&P 500 futures.

They call the ascending triangle a continuation pattern.  That's because they are most reliable in the middle of an uptrend.  Obviously, that's not the case of the last few weeks price action.  Try to think of it tactically.

No matter how you cut it, bulls get more impatient in the market and keep buying at higher lows while sellers sell at a certain level.

It's all about the underlying trend and psychology  When we're in a larger downtrend, shorts set up camp at a certain level they like.  People see that and know about when to stop pushing their luck.  The bulls get exuberant and bears pull the rug.

When we're in a larger uptrend, bulls are driving the boat and folks simply aren't long enough as prices keep moving higher.

Trade 'em well!

Energy Surprise

Today a solid chunk of evidence appeared that suggests energy has some room to run higher.  Wednesday in general suggested that the market thinks the Fed will 'keep it easy' and not set the course for raising rates.  Only time will tell, but here's a look at what i'm seeing.

This is XLE's strongest push over the 20 day moving average since the decline starting in May.  It's also the healthiest momentum the group has seen almost all year.  The chart action is speaking to us.

The obvious target here is 67.75-68 area.

Looking at the chart of WTI Crude Oil futures, we see a strong coil has built throughout the last week or so.  This pattern appears ripe for continuation as all the short term moving averages are pointing higher.  The main target to watch here is the 200 day moving average around 52.

Trade 'em well!

A grand rug pull

Does the Fed feel forced into doing nothing?  Will they raise rates?  Who knows

Mike Lebowitz makes an interesting comment about a market rally into the FOMC.

a breakout higher from the much watched spx triangle prior to the FOMC may be a very bad sign fwiw.

— Michael Lebowitz (@michaellebowitz) September 15, 2015

I tend to agree that this market is setting up for a grand rug pull.  The probabilities suggest we should emphasize this potential outcome in our scenario based trade planning.  Could it be easy as simple as a rally into (and possibly through the FED announcement given they 'keep it easy')?

As the market is now in a downtrend, whatever strength we can get in this market is going to be a hell of an opportunity to get short.  The same as pullbacks in uptrends are a hell of an opportunity to get long.

The question is, will that opportunity be closer to 1980 or 2040.  Again, who knows.

All of a sudden, the New York Stock Exchange's McClellan Oscillator is getting quite overbought.

This coming while the markets slowly work off major oversold conditions.

Again, the trend of the market has changed from up to down.  Many smart large investors know this.  Volume in the majority of stocks is much lower these last couple of weeks.  Buying interest has dissipated.  

If you're a bullish investor, patience will pay in spades.  The next fat trade is likely to the downside.

Trade 'em well!

Gold Miners re-visited

A few weeks ago, I wrote on some junior gold miners and their MASSIVE recent false breakdowns.  Friday, we saw an attempted sell-off below key support in the group that failed.

The intraday chart in Gold Miners ETF GDX tells us a few things.  The impulsive rally after Friday morning’s sell-off was a strong signal from the group.

Although we see some very positive signs, let’s note that no rally is confirmed yet.  Price has failed to make a higher high or even a higher low.  Also GDX has also only rallied into downtrend resistance and the falling 5 day moving average.

Here’s a look at two the top holdings of GDX NEM and GG on a weekly timeframe.  One common theme: momentum divergences.

Here’s an updated look at some of those false breakdowns in junior miners from the original post.  

As you can see, they are holding the fake-break down levels for now.

The common theme across all of these charts is the absence of downside momentum.  That’s exactly what you want to see when looking for a market to turn from bearish to neutral / bullish.

Calling a turn in the group is pre-mature.  That said, there are many conditions lined up that suggest a major turn.  It’s worth watching GDX to see if a further turn is completing.  Risk-reward wise this is the most interesting group for investors in a choppy mess of a stock market.  

Thanks for reading!

Tricky Tape

The last week or so has been one of the more confusing tapes in recent memory.  Technical levels are overshooting and markets are rangebound mostly trading on sentiment.

What's interesting is the number of biotech stocks that are just ripping to the upside, while there is very little promising individual stock action from other risk on groups.

You can just feel traders getting chewed up and spat out as everyone is anticipating another strong move, whether it be up or down.  The question then becomes how long before enough traders are worn out, exhausted or bored by the action.  That's a tough one to answer.

Post Fed announcement, there will be strong anticipation of directional movement.  Given the recent volatility, last week's choppiness and the tendency of sharp moves around the FED announcement, traders may just shy away from the action.  Keep that in mind as we move forward.

Each Fed meeting these days is met with consternation from the crowd.  It's almost as if a cushion for the market is built in.  We'll see.  I don't buy it enough to bet on it.

Throughout July and August Oil was THE BEST trading market out there.  Now, for whatever reason, it's not trading so cleanly.

After a now months of basing action, the gold miner space is showing signs of life.  Numerous signs suggest GDX can bottom and rally from here.  We'll see if that's the case soon enough.

Trade 'em well!

Charts worth watching

Here are a few charts worth watching in markets across the globe

Emerging Markets bounced at the 2011 lows.  34 and change has been a key pivot level in the past.  Note 34 has been the top over the past few weeks.  It's almost time to place your bets.

China A-Shares ETF ASHR is testing a key area with the falling 20 day MA catching up to price.

Everybody 'knows' China is an unsustainable bubble, but the formation in the Shanghai exchange over the past decade isn't bearish unless that 2014 lows are taken out.  

All of a sudden Peru is trading within a real tight bull flag looking pattern.  Can it rip to the falling 50 day moving average?

Trade 'em well!

Decisions

Recently I split up my weekly letter into two sections each published bi-weekly in an effort to save time.  The split was silly.  It's just the wrong direction.  

There simply isn't enough market changes and relevant stuff to write about weekly.  Well maybe there is, but it's not worth the time week in and out.  Expect a Rotation Report maybe once every three or four weeks with hopefully only highly important and relevant content and insights.

Trade 'em well!

NEXT Series: Fitness Tech

Wristly took a survey of uses of the Apple Watch.  The wanted to know what you were using more and less than expected.  Check out the far and away leader of more than expected use.

70% of responding Apple Watch users are using Activity Rings AKA fitness tracking more than they expected.  We lie to ourselves about our physical activity all the time.  Having data points, although not the most accurate or reliable, gives us a clear cut view of how active we've been.  I believe this data shows that the activity tracking trend can reach a mass scale.

Tracking your activity throughout the day can be somewhat addicting.  Separation anxiety from our smart phones is borderline an epidemic.  This certainly isn't on the same level, but people working to take care of themselves do like to be informed throughout the day.  A bond / dependence builds on these things over time.    

I have a year-old fitbit flex.  It's a piece of junk (you get what you pay for, right?).  It takes forever to charge, it counts steps when you move your arms quickly, and doesn't sync at least one day a week.  BUT!  I still want a new one.  We'll get to why shortly. 

Just as athletic fashion has taken over in the past decade, these will see a push toward wide spread adoption in the coming years.  Why?   Not only is it a useful tool to have, it's also a status symbol.  It says hey, I take care of myself.  It's also a form of self expression.  Some devices are sleek and most are fashionable in their own way.  Also, an added kicker is the healthy lifestyle trend.  More young people in the developed world want to take care of themselves.  It's a perfect storm.

The key is finding the big winner in the space.  Maybe Fitbit or Apple will win.  Or perhaps Jawbone or Garmin or a new player eventually wins.  Fitbit was smart to go public.  Now it'll be easier for them to quickly snap up any relevant tech.  We're still really early in the big picture.  The the game-changing technology is NOT here yet.  Alas, who knows when that tech gets here and what form it takes.  We've got to keep our eyes open!

Other NEXT Series Posts: The intersection of playmation and virtual reality

Thanks for reading.  

Wrapping Q2 earnings

99% of S&P 500 companies have reported Q2 earnings.  Here are a few quick hitters:

Only 51% of companies beat sales estimates, the five year average is 57%

Year over year revenue declines in the S&P 500 are expected to continue until 2016.

The Industrials were the first sector to really lag outside of energy and materials.  In this quarter, Industrials were the ONLY sector where earnings growth came in below expectations.

Consumer Discretionary continues to surprise to the upside.  It's no coincidence Consumer Discretionary ETF XLY sits at 52 week highs relative to the S&P 500?

It seems like the market isn't rewarding earnings beats this quarter, and the data backs it up. Earnings expectation beaters have seen only half as much 'earnings bump' as the last 5 years.

Natural gas producers SWN, RRC (also obviously not a pure nat gas play, but note CVX) came in with some of the worst earnings misses in the S&P 500.  

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