Jul 25

Weekend Review and Watchlist

We’re 2.4% off the highs.

I know.

It feels worse than that.

It always does after a down week.

That’s because you watch TV, read the news, and see your social media stream magnify the emotions around each day’s move.

It’s good to stay on top of what’s going on, but only the price action of what we actually own should determine whether we act upon it.

Our portfolio did relatively well this week -0.5% vs -2.2% for the S&P 500.

That takes it back to +14.5% YTD vs +1.0% for the S&P.

We’re still fully invested in leading names, mostly from sectors such as consumer discretionary, financials, and healthcare which again held up relative to energy and materials where we have little exposure.

This week’s market move felt even more like a rug-pull than usual because new highs had seemed inevitable as the week began, before the selling kicked in and intensified late in the week.

By Friday’s close the weakness was enough to trigger our first exit signal in the portfolio since June 30th.

ACCESS TO THE REST OF THIS REPORT IS AVAILABLE VIA SUBSCRIPTION. CLICK ON THIS LINK FOR COMMENTARY ON CURRENT POSITIONS, NEW ENTRY/EXIT SIGNALS, ADDITIONAL TRADE IDEAS, AND A COMPREHENSIVE WATCHLIST.

 

 

 

 

 

 

 

 

 

 

Jul 19

Weekend Review and Watchlist

The market appeared to put the issues of Greece and China behind it this week, as earnings took center stage and the S&P climbed 2.4% to finish just 0.2% below its all time high close of May 21st.

Markets can correct through time as well as price, and it’s looking increasingly like this most recent pullback may be an example of that, with two months of choppy action potentially being resolved to the upside, following the second shallowest decline in history when testing the 200-day.

At this stage I’m not sure what’s more remarkable, the fact that with all the negative news stories that have been thrown at this market it didn’t even register a 5% decline, or that having observed that and being on the cusp of fresh highs, so many market commentators and participants remain unimpressed.

This chart from Ryan Detrick demonstrates perfectly just how entrenched this cautiousness has become. The 8-week MA of AAII Bulls has been this low only twice in the last 20 years – at the 2003 and 2009 lows.

There are a couple of things to note here. First, this is an 8-week moving average so it may not accurately reflect sentiment at this precise moment. Second, notice I am saying cautiousness, not bearishness. There’s an important distinction to make here. It’s not that “everyone is bearish”, it’s that so few are bullish. There’s a subtle difference.

It seems to me there are two overriding themes that are dominating the thoughts of such market participants:

1. This bull market is historically long in the tooth and at some point will end.

2. At some point in the future interest rates will rise.

I can’t argue with either of those statements. Both are true. But neither are helpful.

Price alone will tell me when the bull market is over. Until it does, I’ll continue to take the opportunities it gives me.

If you’re always looking for any reason to not like a market rally, you’ll probably find it. Whether it’s breadth, low volume, sentiment, seasonal trends, earnings, or economic concerns, there’s always something you can hang your hat on. But recognize that’s what many are doing. Making the data fit a pre-existing narrative to justify staying out of a bull market. This week it seems the fly in the ointment was breadth. While the S&P closes in on new highs, the equalweight $RSP is lagging.

 

This was also demonstrated by the Russell relative to the S&P:-

 

But that’s about it.

Rather than make what’s not working a reason to stay out of what is, I prefer to find the leaders and follow them.

The big winner this week was the NASDAQ, climbing to all time highs, boosted by biotech and Google’s post-earnings breakout.

 

Turning to the S&P Sector SPDRs, I have Consumer Discretionary ($XLY), Healthcare ($XLV), and Financial ($XLF) as the top three.

 

They’re followed by Consumer Staples ($XLP), and Technology ($XLK).

After that comes Utilities ($XLU), Industrials ($XLI), Materials ($XLB), and Energy ($XLE), which hit the lowest levels since 2012.

The Alpha Capture portfolio enjoyed another strong week, climbing +3.0% vs +2.4% for the S&P 500.

That takes it to +15.1% YTD vs +3.3% for the S&P.

We trailed a few stops higher and added to a couple of names, but had no new entry or exit signals. This week was a good example of when there’s nothing to do but let our winners run and manage risk. That’s exactly what we did. We haven’t had an exit signal since the end of June. We took our losses early, got new entry signals as others were still getting exits, and have since benefited significantly from the ensuing rally.

Full analysis and commentary on current signals, as well as entry/exit posts, additional trade ideas, and a comprehensive watchlist is available here.

Despite the concerns over breadth expressed by some, I am still finding plenty of valid setups. We’ve had a fully allocated portfolio with 11 names since early July, and currently have an additional 12 active trade ideas.

With the market on the verge of all time highs we are in a target-rich environment, so much so, that I believe you can afford to be even more particular than usual about setups and entries.

It’s pretty easy to find something at all time highs. In such conditions, when looking for the next opportunity, there is absolutely no reason why you should be considering entering anything with a sub-optimal setup. You can afford to demand more from the trend and take only the strongest signals.

Here’s a handful of names that may potentially offer such an opportunity:-

$CME

 

$SNA

 

$BCR

 

$VRX

 

$DPS

 

$MA

Full analysis and commentary on current signals, as well as entry/exit posts, additional trade ideas, and a comprehensive watchlist is available here.

 

 

 

 

 

 

 

 

 

 

 

 

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