Burrito Psyche 101

Chipotle's CEO finally came out to the public to talk about the E. coli breakout.  The stock is really moving.

Shares are rallying hard today.  Let's think about what this interview signals.  Chipotle has been relatively quiet about this.  Why?  Well maybe they just didn't have all the facts.

The market has sniffed out they waited until they fully comprehended and solved any issues that might of caused this.  This is clear.

From Business Insider's recap of CEO Steve Ells' Today Show appearance:

These are great answers.  They're great for a short term pop and short squeeze.  They're great for long term investors.  However, is a warm and cuddly tv interview going to convince you to go Chipotle any time soon?  The issue remains...


Trade 'em well!

Disclosure:  I have no position

Fresh Blood: A market update

I reached out to my friend Gianfranco Carrion to try to get him blogging.  He's a talented chartist with awesome market insights.  Luckily, he agreed.  Let's show him some support for this awesome piece of research he put together!  

Here I go, first blog post ever. Thank you for your viewership.

I may be able to anticipate your first question: “Who is this dude and why should I continue reading?” The answer to that question and some others about my background are at the bottom of this post for those interested.

I do wish to share the purpose of my writing. When I began learning about the market years ago, I could noticeably identify two distinct target audiences for financial media:

1. The market veterans who jump right into complicated technical and fundamental facts
2. The novice readers who seek to make sense of the never-ending noise and fluctuations of the market

With this blog, I aim to close such gap. I intend to share material that speaks to both groups alike. With luck, my writing will make some money for members in both groups.

Now, a few disclaimers and assumptions:

• I ‘m first and foremost a technical analyst. I’m all about CHARTS at all timeframes. You will not find wordy fundamental stories on this blog
• I do understand there are fundamental forces affecting the market. I just chose to decipher them via charts
• Very few stocks trade in a bubble. If you can’t chart market direction ($NDX, $SPX, $RUT) and have a plan for it, the odds are stacked highly against you.
• You’ve heard it and it’s true: The market takes the “staircase up, elevator down”
• I assume readers have an understanding of basic technical analysis tools. I mostly use: Simple moving averages, 5-day exponential moving average, Bollinger bands and RSI
• I keep charts simple. Keep the Fibs, Ichimoku Clouds, Keltner Channels, etc in the closet
• I defined trends (up or down) as price being above/below it’s 5-day exponential moving average. That simple
• My motto: “Chart first, think later. Always tune out the noise”

Ok enough words…On to the charts. Let’s be very clear about where we are in this current bull market

Zooming in, we are only -3% away from the $SPX all-time highs (2,126.64). Sure doesn’t feel like it, doesn’t it?

So much NOISE hitting CNBC news wires last few days. Below is a summary of “reasons” for declines in last 5 days. Yet, $SPY has moved in a 2.8% range. Do you go long now? NO. I rarely go long when price is under 5ema. Support stands at 50dma at 204.99 (-0.95%)

Focusing on the last reason for sell-off, $OIL is in the gutter. There’s so much noise from CNBC and other “pros” calling for $20 crude. That tells me fear is hitting the street and makes me think the bottom is near. Take notice $USO reversals in 2015 were all marked by HUGE daily candles. First huge squeeze day tends to follow through – keep a close watch

Charlie Bilello shared the largest Crude Oil declines in History via @Stocktwits  (Lowest -68%).  Current decline at -65%

In summary:

• $SPX is below a declining 5ema
• $SPX -3% away from all-time highs
• Rate Hike, European Central Bank and Oil price headlines are clouding wild price swings
• Oil in the middle of a historic decline (-65%) – wait on first squeeze reversal
• December 16 Rate Hike looms in the background

So, what do I like in this environment? The last standing soldier is the technology space, which has been able to fend off the Oil decline pressure better than industrials and non-tech large caps

Note the $NDX (Nasdaq 100) is still holding its 5ema (4,686.97) and forming a base in a 2.9% range. We want to see a decisive breakout above 4,700 to project upside on a longer timeframe

Am I telling to go buy your preferred tech stock? No, to the novice investor. The best move right now is to wait for a new market trend to develop after the news event on December 16.  However, there indeed are some names within tech that call my attention, such as $SWKS and $ATVI

$SWKS @ 87.1 / Stop $85 (-2.4%)

Skyworks looks attractive after downtrend breakout. Looks poised as a good swing over 20dma

$ATVI @ 39.36 / Stop $38.3 (-2.7%)

Activision now over 37.8 and still in a strong uptrend. Ride trend over 37.8. Stop tighter than usual given environment

In a “NO CHASE” tape, I tend to visualize market trends at longer than usual timeframe. I’d like to close with one final crazy thought. Given extreme sell-off in crude and horrible sentiment in space, one of two scenarios is near:

1. Either the energy sector ($XLE) implodes and is probably the trigger for the next bear market
2. Crude ($WTIC) “magically” reverses, forcing energy sector to bounce w/ force, finally propping $SPX into new highs. For this, the dollar ($UUP) will need to cool or lose uptrend

Well, big bets = big $. At the moment, I’m much inclined to think the bottom in oil is a couple of points away. Look for possible reversal signs discussed earlier in this document. Until then, I’m keeping stops tighter than usual with a 100% focus on tech space. Thank you for reading. Trade ‘em well - Gio

Since June 2014

$UUP +22% $WTIC -65% $XLE -36% $SPY +5%

More about Gianfranco: Q & A Session

1. Who are you and why should I listen?

My name is Gianfranco, a 27 year-old Financial Analyst from Atlanta. My true passion is asset management; further, as investors/traders, you and I share the common interest of making money playing this game. I seek to share my ideas in order to spread the knowledge and wealth with anyone who cares to read

2. Are you experienced?

I’ve been actively investing in the market since early 2013 (man what a good year that was!). Ever since, I’ve spent every waking second learning how to chart stocks and studying every movement in the market, current and past.

3. What are you offering?

I offer my ideas about market direction expressed in CHARTS. Personally, I trade market direction via ETFs the mosts. I do play individual stocks when market conditions alow for longer swings; however, that has not been the case since late 2014.

4. Who do you look up to as an investor?

One can say I’m a new age trader. Reading “Insider Buy Superstocks” by Jesse Stine was the reason that turned me into an active trader. I believe the rise of High Frequency Trading has changed the rules of the game and that mirroring techniques from 50 years ago have little profit for me. I try to understand and beat the machines via tech analysis

5. How do I contact you?

I more than welcome interaction via my Stocktwits account: @gianfranco18 – talk to you soon

Thanks for reading!

A Look Ahead

Goldman Sachs recently came out with their 2016 preview.  They mentioned they expect 2016 to be a flat year in the markets.  My buddy Ryan Detrick over at Kimble Charting Solutions  notes that back to back flat years just don't tend to happen.  In fact, they tend to lead to strong moves.

Here's Ryan's take:

The bottom line is a flat year next year is highly unlikely.  As with anything, it could happen - but history would say be on the lookout for a big move next year.  In fact, I found 22 years were flat and the following year moved at least 10% (up or down) 14 of those times.  So, about two out of three times it moved double digits after a flat year. 

Aaron here - So we want to figure out if a big up or big down year is more likely.  The two critical factors we need to consider are earnings trajectory and the chart of the S&P 500.

First lets look at earnings via Goldman Sachs chart.  They expect about a 10% increase in 2016.  That's bullish.

Let's look at the S&P 500 chart.

That's pretty clear resistance we're leaning up against.  Pattern wise we may be looking at a rounding top.  We'll have a clear read sooner or later.

My Take:  If the S&P 500 can take out the 2015 high by more than a few pennies, we could be setting up for a strong 2016.  Otherwise, it's not worth being aggressively bullish from a broad market view.

We also need to consider the fact that forecasting is hard.  Murky global economic trends are only complicating matters.  The point is, it's very important to not be blindly bullish based on earnings projections.  After all, the market will sniff out the truth.

Floor-natic

I love floors that form in charts.  Why?

Floors capture the essence of buying low.

Plus, they tell us when longs are buying and shorts are covering.

People tend to become disinterested in a stock when the floors are going to work.  You can use psychology as an added edge.

Frankly, they just fit my trading.


What's awesome about floors? 

You know where you are wrong.

Where you're wrong is close by.

Similar principles work on nearly all time frames.

They often form after a long term false breakdown.


What stinks about floors?

They can be temporary or closer to permanent.

It's hard to know when they will hold.

You never know how long they will consolidate.

America's biggest problem

There's a lot of talk and frustration over the Allergan and Pfizer merger that takes Pfizer's massive tax base overseas.

As an American, this is disappointing.  Unfortunately, this is a continuing trend that uncovers one of America's greatest problems today.  Poor treatment of capital.

Wriston's Law of Capital states that capital flows to where it's welcome and stays where it's treated well.  Wriston also notes that capital isn't just money.  It's people and ideas too.  Let's take a look at the state of 'capital treatment' in the U.S.

Monetary Capital

Ever since the financial crisis, large corporations and the wealthy have been targeted by our society.  It's one thing if that is a public perception.  It's taken to a whole new level when the government gets involved.  The Obama administration has basically led the charge.  Not only by tax code, but by rhetoric as well

If the next administration continues down this path, that really reiterates a negative tone for corporations.  This could be very problematic, as the east quickly catches up to the west and global competition continues to rapidly escalate.


People

One area that the U.S. is really thriving in is how it treats people.  Yes there are many things that are shoved in our faces because of media, but what countries around the world are competitive economically and treat their citizens better?

What's really interesting is the college bubble.  We're all aware of the bullshit degrees and universities out there that don't prepare you for much.  That said, so many employers are willing to pay for employees to go to trade schools.  Special skills such as coding, of course are in ever increasing demand.

We have a certain percentage of the population completely screwed in important industries such as healthcare and education.  This horribly mis-aligns incentives.  

Perhaps this created our current 'mixed bag' dynamic - the best and brightest are still in a great treatment, but the environment for creating more citizens that will greatly contribute to society continues to erode.

Ideas

There are a lot of controversial emerging technologies from medical science to machine learning and robotics, self driving cars and virtual reality.  We know the U.S. largely has a 'bought government'.  How does regulation end up treating these massively disruptive technologies?  If we see resistance emerging from the government, the U.S. is, for lack of better words, in a confirmed structural downtrend.


All in all, America is still relatively friendly to every type of capital.  However, if these cyclical problems become secular, we have a lot to be concerned about as U.S. citizens.  Come to think of it, these might already be secular in nature.  Again, it's just as important that the U.S is better relative to its global competitors.

It's a good thing that people freak out about this stuff, it helps keep America's compass on the right track.

Thanks for reading!