Broad Market Outlook
Big news of the week was the tax bill getting passed as a result corporate tax rates will be lowered from the mid 30%'s down to 20% as a result small and mid cap companies should benefit the best from an earnings perspective.
Sector wise we saw REIT's get smoked after trapping anyone who tried to buy that $86 breakout in VNQ. Utilities were also one of the worst sectors of the week due to the wildfires out in Cali, both sectors we have virtually zero exposure to. Golf clap for the group. The sector that was in plan and starting to wake back up again are the energy names as we saw CVX breaking out as noted in last week newsletter, and XOM setting up at a major level ($84).
Kills me to even write the word Bitcoin in this newsletter however this is a real world example of a bubble and case study that will be studied for years that we watched first hand. So lets dive in that shitty water for a minute to learn a thing or two about bubbles.
Stages of a Bubble
Whats a 42% loss between friends in a week ($19,000 to $11,000)?
Toward the end of most bubbles there are a few subtle signs one of the major ones are when people start taking our mortgages or home equity lines on there homes to get in. We saw that during the tech bubble, Beanie Baby Mania and during the housing crisis.
Another subtle sign is when it is started to be advertised as a long term investment and people are given the option to add it to there 401k and other retirement accounts. People were cashing out there 401k's in 2000 to buy stuffed animals as long term investment. Not a few people, we are talking millions. Want to know how many crushed it? A hand full of women in Chicago, while 99% lost there shirt or toys? You get the idea.
The one good thing for us, is that we can see how solid the overall market is on a percentage basis. From Mach 2009 lows to present day (8+ years), the SPY is only up 285% compared to the 2000% run up in Bitcoin's in 1 year. So when you think the market is high, just realize when you compare it to that type of move. There is plenty left in the tank, let people chase the rabbit while we act like the turtle.
(Was out to dinner with a friend and client on Friday)
Your going to be mad Bennett
I know, you bought Bitcoin
I finally got in on Wednesday!
You know its crashing right?
I wont sell it
You cant, coinbase wont let you
Its only a little bit of money, who cares?
That's rationalizing a loser
I'll just get out when I breakeven
And its gone
SPY $3,000+ 12 Month Price Target
You might be starting to become aware that the market climbs on a Wall of Worry,
"the market is too high!"
"It has to pull back"
Why does it though? Really ask yourself what about the market is too high? Your personally opinion or fact?
On the way down, stocks or markets cling to the Slope of Hope,
"the market will turn"
"this pull back sucks, it will turn soon!"
Currently we are in the upper range of this channel of this year long breakout, broad outlook is still higher however being much tighter with stops because we can very easily retest 255.
Nasdaq $8400+ 12 Month Target
We have all seen how tech has been has been one of the leaders this past year however it seems for the year ahead there has been whisper of smart money moving some risk off the tables in there winners (tech) and focusing more on weaker sectors (cue up The Secret for the lesson on re balancing). In short they sell some of their winners (realizing the gain) using that money to add to the under performing assets. Broad outlook we have plenty of lines in the sand to keep an eye out for 6,200 short term, 6,000 medium term, we stay above those we should continue the rise to 8,000+.
MDY S&P Mid Cap Stocks $400+ 12 Month Target
Mid Cap stocks recently just broke out to new all time highs, there is no real resistance until the 400 psychological level. Short term above 330 all gravy, 300 is the real line in the sand. We should see a boast in earnings in mid and small cap companies thanks to the lowering of corporate tax from the mid 30% down to 20%.
IWM Small Caps $200+ 12 Month Target
Small caps should perform very well this year with the lowering of corporate tax rates from the mid 30%'s down to 20%, line in the sand is $144 above it (good).
VFH Financial Sector
Most financial names came along way this year, tightest flag through $71 vs $69, would be keeping stops very tight if still holding any of the banks. Flag after flag they tend to get tighter and tighter towards the end of the overall move.
VCR Consumer Discretionary
Consumer discretionary came a long long way since its breakout in mid November, would be keeping stops very tight vs $156.
VDC Consumer Staples
Consumer staples retesting the $147 level however this is the 2nd retest where we tend to see some selling pressure from the investors who were trapped getting long near this same level back in May, should expect some what of a pull in and will look to get long above $147 after the 3rd major attempt at that level.
VHT Healthcare Sector
The Healthcare sector having healthy pull back, key level to keep an eye on is $156, anything vs $149 is far game.
VGT Tech Sector
The tech sector, if it aint broke dont fix it. Tech is flagging at highs, key level to see break is $168, if your still in tech, could be a spot to put risk on through that level, below $160 would be the line in the sand to lighten the load.
The energy sector broke out this week, with CVX leading the charge after breaking out of a nice flag and has its sights on its prior highs ($135), seems smart money is starting to show some love to this sector, XOM also setting up which has been a laggard all year, through $84/$85 we should see a move back to highs ($95). Next major level in VDE to keep an eye out for is $100, anything vs $93 is all par for the course.
The REIT sector sold off this week due to the Tax Bill getting passed, there have been major cuts to what home owners can deduct off their mortgage interest and property taxes, as a result we saw VNQ tickle that $86 prior to the bill getting passed and than very abruptly get smoked back near support of this wedge. Short term should except some more selling pressure due to the uncertainty of the future tax implantation.
The REIT's that will be hurt the most will be ones whose investment properties are based on the east or west coast (where property taxes and home values are the highest), this would be the time to go hunting for REIT's that have there investment properties in central US (where they will not be as effected by the tax changes) that have been getting smoked due to the head line risk only if you can weather the volatility. In VNQ will look to nibble up through the gap fill $82 vs $81 to be in for the $86 break in time.
VPU Utility Sector
The utility sector was by far the worst performing sector this week, most selling off due to the headline news of the fires in Cali, sector wise it tends to be a good sign when utilities sell off since smart money tends to park there money in this sector during times of uncertainty. If they are pulling out, the money should follow into a new sector as we saw with energy this week. VPU has been defending $112 for quite some time, would like to see if it can still hold that line in the sand.
VGK Europe ETF
VGK, Europe, starting to tickle the $59 level anything vs $57 is far game for a move back to highs.
The New Big Picture Set Up
The Big Picture PFE $50+ 12 Month Price Target
PFE is more in the value camp in the healthcare sector than the fast bio's were use to, however we are starting to see some rotation to these value names near major level like INTC that was good for a 26% move in a month through $38. PFE is setting up around this $37.50 area it recently made an attempt for it however didnt have the juice. For now will be keeping an eye as it pulls in vs $35. Given its a slow name and each penny counts. I will be looking to buy $37 vs $35.
Big Picture Target $50+
Updated Big Picture Set Up's
The Big Picture WVE $80+ 12 Month Price Target
WVE is a recent new issue biotech, as we have seen this name has been a beast this past month and showing its hand that $40 is still the major level (2nd time retesting it) where we can expect the sellers who were trapped from the first go around to take stock off for as close to break even as possible.
These new issues are sneaky and so are the bios. How tough was the ENTA (bio) buy was or even ROKU on Friday how tough it would have been to buy $52 instead of up through $48.50.
Ideally we would like to see it pull into the low $30s than turn back up through $40 however Santa doesn't always bring us our favorite setups. For now we will have to keep an eye on $40 and be ready to click the button if it wants to go sooner.
Pulling back as we wanted to see, still needs some time.
Big Picture Target $80+