MARKET SUMMARY (11/11/19) – ALL CLEAR

Let’s put aside everything we know about the market fundamentals for a second.

That means we’re going to ignore what we know about the recent past – the free fall last December, the 2009 financial crisis crash. We’ll ignore everything we’ve read about the slowdown in economic data, the yield curve inversion that everyone was talking about a few months ago that normally signals recession. We’ll ignore the earnings misses and the choppy earnings season. We’ll ignore Trump tweets, trade wars and election uncertainties. And we’ll ignore the lofty valuations for the momentum names that were trading at 20x revenue, levels not even seen in the 2000 internet bubble.

If we ignore all the noise and look absolutely, purely at the chart, the message is clear.

New all-time highs. Strong uptrend, breaking above strong resistance. Momentum weekly technicals all pointing up, and in fact early in a bullish configuration. 

The chart is telling us that the market is bullish and getting more bullish for the intermediate term. Support is now well below and getting further in our rear-view mirror.

So the big picture is strong.

The market is forward-looking. It has been proven time and time again that the market discounts events and data months in advance. Why else would the market correct last September-December, when economic data was generally strong and there was no where near the level of worries I listed above?

And with the market at all-time highs, I’m going to make the not-so-bold prediction that economic data, earnings, headlines etc. will all be surprisingly strong in a few months. 

And that’s when the market will be setting the stage for its next correction.


5 THINGS ON MY MIND

1. My line in the sand keeps trending higher. It’s now at 3,020. If the market closes below there, I would start considering some more bearish scenarios.

Even then, it is still unlikely I would expect more than a 10% correction anytime soon. Most people reading this e-mail can ignore much of these short-term trading views. 

2. If you’ve been following me, you know that while the intermediate picture is bullish, the combination of short-term overbought conditions and the profits I have in my longs, has me watching closely for some sort of near-term pause in this rally. No reason to guess though, I’ll wait for some sort of support break first.

3. When you’re trading, your life away from the screens should often factor into how you manage your positions. As I write this, I’m getting ready for a couple days of mini-vacation. I’ll usually take down risk when I know I’ll be away from my desk, or to make vacations a little more enjoyable. With the holidays coming up, everyone should think about how they want to balance their trading time.

4. Bitcoin – I’ve been nibbling. It’s near the range of support, and since I’m a long-term bull, I wanted to start building my position.

5. When taking a position in an individual stock, if you look at other direct comparables in its subsector and most of their charts look similar and are also bullish/bearish, it’s a good sign and should add to your conviction. This was the case with media stocks last week. When I highlighted Disney, I noted that all the names looked similarly interesting. The sector had a strong week, led by a nice breakout for Disney.

This is going to be the case with cannabis names as we enter the new year I think.


A CHART THAT CAUGHT MY EYE

ATVI – Activision

If you want to be a successful trader, you sometimes need to put emotion and history aside and test yourself.

ATVI was highlighted as a long in this same section a few months ago. It was also added to my basket of favorite long ideas and has been a huge outperformer.

But from a pure chart perspective, you can see where I would be cautious, or even short right here.

Up trendline has been broken. Double top chart formation. MACD is now dipping into bearish territory (negative and below the signal line). Momentum technicals overall showing weeks of negative divergence.

Strategy: Short here after Friday’s attempted bounce off its gap down. Stop out of a short if it closes above its recent highs. ATVI is now re-testing the broken support from below, and if it acts as resistance, should be a nice short.

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