MARKET SUMMARY (11/4/19) – STICKING TO THE PLAN

If it was easy, everyone would be rich.

A month ago, the sky was falling, the permabears were tweeting crash targets, and politicians were posting stock charts.  A double top was staring at us right in the face and economic, trade deal and earnings headlines couldn’t have been worse.

Fortunately for us, we knew that the bull market was still sound and we were looking for spots to buy.

I held some longs from August, added opportunistically in October, and in the blink of an eye, the market was going vertical again.

Our bullish bias should be our base case for many months. It has worked all year. The December 2018 bottom was a significant technical bottom, and the rally should last well into next year. If we just stick to that overriding view (with selective short-term caution when it is warranted), we’ll keep playing with odds on our side and profit.

So where are we today?

Well, the charts are now all on our side. Any technical or chart analysis has to acknowledge the new highs, the lack of resistance above, the momentum technicals all turning up. On the weekly MACD, DMI and VI momentum technicals that I use, all are bullish and pointing to a few weeks of strength.

As I’ve also mentioned many times in this e-mail, the later in the year we get, the more FOMO kicks in and the pain trade points up. Positioning is always hard to gauge, but it feels like traders are still off-sides, so I’ll lean long until year end.

Short-term, things are a little trickier. Sentiment now has swung decidedly bullish. Without a doubt, the vast majority of people’s charts are now bullish and most people’s targets are higher. I’m seeing most asking whether the next pullback will be from 3,080, 3,100 or higher.

Having booked solid profits, I’m in a nice position to sit back and look for spots to book some gains. 

For most of you, none of this matters. Closing below 2,990 is my new line in the sand where things might get bearish for a few weeks. Unless we break that, everything is bullish and we shouldn’t try to get too cute. This strategy of setting a moving stop out level (that has risen with the market) has guided us well – it has kept us from getting cautious too early and we’ve been able to ride the rally higher.

Keep an eye on my Twitter for short-term trades in the meantime. And don’t confuse any short-term trades with bearishness.


4 THINGS ON MY MIND

1. A little more detail on my process for short-term trading. My core position is long, but I have profits from literally buying the August bottom. In this case, as I look for spots to book these profits, I keep it simple and let the market guide me. 

We have a steep uptrend, based on the simplest trendline I could draw. If we break that uptrend we have our trade catalyst. If that happens and we also get a break lower on the MACD signal, I’ll take some profits. Otherwise, I sit still and let it ride.

And again, my core long-term position doesn’t move until we close below 2,990.

2. There’s a big group of Twitter traders/gurus I follow that are consistently bearish and consistently wrong. It’s a weird permabear phenomenon that I sometimes make fun of, but can’t help but follow out of curiosity.  As we make new highs, I still see the same guys posting the same predictions that, No! this time, for real, is THE top. “Lock limit down” coming.

At this point these guys are even useless as contrarian indicators. The fact that they are always bearish makes them meaningless sentiment signals.

The thing I’m most fascinated by aren’t their weird posts, it’s the comments and replies to all of their posts. No matter how often they’ve been wrong, on every terrible call, there are followers chiming in and agreeing. It shows you how dangerous Twitter can be. You can curate your own news feed to tell you exactly what you want to hear. And it’s human nature to do that. Take a lesson from these people and make sure you’re getting balanced trading analysis, and not involuntarily blocking out those that are telling you you’re wrong.

3. Bitcoin’s impulse move last week seems to be holding. On a weekly chart, we have a nice downtrend break, triangle/flag pattern and technicals confirming. It’s the 3 C’s I always look for and teach in my course: Catalyst + Chart + Confirmation. I’m a buyer of a small position here on this daily dip, which is holding the trendline break from last week. 

4. I mentioned CBS in my “Chart That Caught My Eye” section last week. To follow up, I’m seeing old school media as a group looking interesting. CBS, VIAB, DIS, CMCSA are all coming off bottoms and turning up. I always want to buy low, and with the rest of the market at its highs, these forgotten and hated franchises have some upside.

Fundamentals suck, you say? Netflix and Youtube going to put them out of business? No one watches broadcast TV anymore? All of the above is true. And like always, none of that matters to my trade here.


A CHART THAT CAUGHT MY EYE

DIS – Disney

As I noted, media stocks are looking good. That includes Disney, which in my mind, stands apart from the other traditional media companies.

In fact, from a fundamental standpoint, DIS is consistently my favorite story among all media companies, including the “new media” streaming giants Netflix and YouTube. As Netflix has shown by their constant need to spend billions on content to sustain their subscriber growth, content is king. And if content is king, no media company has a bigger advantage than Disney. Owning the most dominant franchises in all of media, from the Disney and Pixar library to Marvel Studios to Star Wars, Disney has a intellectual property edge that it doesn’t have to spend to acquire.

With the upcoming game-changing headline catalyst of its Disney+ launch, scooping up some Disney 10% off of its highs is a decent trade here. 

Strategy: Buy here on last week’s trendline break and potential multi-week rally. In the near-term, stop out on last week’s lows.

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