The Big Picture Outline
- Broad Market Outlook
- Macro Rotation
- Sector Rotation
- Sub Sector Rotation
- New Big Picture Idea
- Updated Big Picture Idea's
Broad Market Outlook
In our backyard the party goes on after a slight chance of rain that we saw earlier this week however if we peak over our tall fence and peak on our neighbors they are having a rough go at it. Globally most major markets have either taken out new lows for the year or entered into correction territory some even close to bear markets (China down 22%, Japan down 10%, Emerging markets down 18%, Europe down 13%, Russia down 16%, India only down 7%) while our markets are banging on highs. Divergence is pretty high, now that's not to say pack it in the worlds over. Small and mid caps are looking amazing and aerospace and defense names are just begging to be bought. While tech names continue to show that they just might need to be taken to the woodshed a little longer as the sugar high wears off, just peep NFLX:
Parabolic moves are parabolic and as you can see once the tide turns they turn quick because there is no real support levels, hence why we can appropriate true consolidation. Let's look at Amazon for example:
Macro Rotation Outlook
Nasdaq setting up to take out 7500
S&P 500 retesting high, cautious
Dow Jones holding, looks to want to retest highs
Mid Caps 367 DCA
Small Caps 170 DCA
China back holding
Japan 57.55 DCA
Europe 56 DCA
Emerging Markets 42 DCA
Russia 20 DCA
10 Year 3% flagging
USD higher, bearish for stocks
Oil heading lower
Nasdaq 8400+ 12 Month Target
Nasdaq still setting up to retest 7500. As long as the prior pivot lows hold up the game goes on.
SPY 300+ 12 Month Price Target
The SPY held up after it seemed like the pivot low was about to break however still cautious as major markets do not tend to have feasty breakouts on the retest, unlike an individual stock to move an entire lot of companies takes time, would not be expecting fireworks anytime soon. After a shakeout or another correction from these levels, that's a different story.
Dow Jones 300+ 12 Month Price Target
The Dow 30 still flagging in this range and setting up for a retest of highs in time.
MDY Mid Cap Stocks $400+ 12 Month Target
Mid caps continue to look better and better along with small caps, the focus should be here as well as aerospace and defense as they are showing the best set ups.
IWM Small Caps 200+ 12 Month Target
Small caps continuing to flag near highs with a defined level of 170.
GXC China +$150 12 Month Target
Overseas has gotten beaten up quite a bit however these are the times where you need to nibble on what's weak and sell what's ripping. We have all seen the leader turn to a loser and vice versa, the game here is to profit from both. Selling the hot hand and picking up some of the cold ones before the turn.
EWJ Japan +$85 12 Month Target
Retesting lows, double bottom forming, down here buying on the way up is a way to pick up some valuable stock if the double bottom wants to hold.
VGK Europe ETF $82+ 12 Month Target
Still some weakness in Europe as a new low was formed however not the scary engulfing bars simply just mild weakness as it bounces around, will continue to DCA.
VWO Emerging Markets +$58 12 Month Target
Downtrend still holding up to a T, once it takes out that downtrend line, the game plan will be to sit on one's hands until a retest of highs are put in.
INDA India +$53 12 Month Target
India is showing us what we can expect in the VWO downtrend break, higher lows are forming and sure we locked in a nice 5-10% chops maybe a bit premature however now we can sit back and hold the rest as it continues to set up to retest highs.
RSX Russia +$30 12 Month Target
Russia is back near lows after it was not able to hold up the downtrend break, will continue to DCA as it breaks the downtrend line.
10 Year Treasury Note Yielding 2.87%
The 10 year is starting to flag in this 2.7-3% range seems like we will see higher yields in time.
You might start to hear terms like "inverted yield curve" in the media. There is one historic leading indicator that will give us a big red flag that a recession is on the horizon which is an inverted yield curve.
Very simple an inverted yield curve is when the 2 year Treasury Bill pays more than the 10 year Treasury Note.
Right now 10 year Note is yielding 2.88% (higher = good)
Right now the 2 year Bill is yielding 2.62%
BND Bond Market
Bonds basing as it has been as of late, snooze fest.
The dollar has finally poked its head out of this range it has been in for quite some time, should expect higher prices which is not good for domestic stocks.
The fishy finally showed its hand, as we mentioned it was weird that the energy stocks were looking so strong when oil (what leads energy stocks) was looking like shit, eventually the makeup runs off and after oil put in new recent lows, energy names took a hit, however for us that's great as there will be great deal soon enough.
Fun fact there is 42 gallons of gas in a barrel of oil which comes out to around $1.88 per gallon. So when your at the pump paying $3-$5 now you know why these countries fight over it so much.
- For any of the major markets or sectors, we are parking these positions in a taxable account looking to hold for a year plus (Long Term Capital gains)
- Meaning we are willing to hold positions against us as overall sectors and markets are much less volatile than individual names.
- We are buying or adding (dollar cost averaging) when there are actionable set ups.
- We are selling for either profit or getting out for breakeven if better opportunities arise elsewhere in other sectors.
- If you plan to add this strategy to your portfolio please discuss it will me so we can make sure you are not parking these ETF's in retirement accounts locking up tax deferred capital that can be put to better use in individual stocks.
Sensitive - sectors that have moderate correlations to overall market conditions.
Charts don't lie, they just need time. Tighten up the stops.
We've had a pretty solid read on the energy sector this year catching the breakout and avoiding the 4 months of it flagging, now with energy breaking down toward its longer term trend line we should be able to start nibbling in time.
Industrials showing it wants to break out of this recent range and retest the prior pivot highs however I would not be so pressed to $145 just yet.
Cyclical - sectors that are more sensitive overall market conditions.
Was a little early on this sector last week when I was expecting the 136 break, however still in this range and will give it time to find the next add.
VCR Consumer Discretionary
Looking great to break 170 however just take note that 20% of this ETF is just Amazon, as long as it continue to grind higher this sector is fine, if Amazon pulls a NFLX expect some blood shed quick.
REIT's are making the round trip back to the major 86 level that was last ticked before the tax reform changes, we have some great buys down when it looked like shit however was not patient enough to let those buys turn to gold.
Defensive- sectors that tend to outperforming during sub par market conditions.
VDC Consumer Staples
Now if the lesson learned from VNQ was to give the shit buys time to turn to gold, in VDC this is a lesson learned, as much as I would like to up my stop vs the line under the gap up lows, will give it the room needed as a retest of prior highs seems in the cards, time now to just sit and be patient.
New highs for healthcare, as its showing us that retests of prior highs can be broken however one has to remember that rules are meant to be broken, does not mean that it will become the standard.
Markets here look strong yet the two most risk off sectors Utilities and REIT's are ripping? Seems fishy.
Sub Sector Rotation
ITA 206 DCA
XT 38.55 DCA
The 76 DCA working so far after holding 74 to the penny next level to keep an eye on will be 78.
Pharma's taking out a pivot that has been resistance for quite some time, time now to sit and hold as it works it way back to prior highs.
IBB Bio Tech
Bio's are still setting up near a major resistance level and after the 20% run its went on a little consolidation would be a great sign.
ITA Aerospace & Defense
Chart wise ITA is looking as textbook as possible for a 10% breakout on tight risk, we started to DCA this week and will add 206.
XT Exponential Tech
XT like ITA also setting up for the 38.50 break out, just needs some time.
The New Big Picture Set Up
The Big Picture ULTA $315+ 12 Month Target
ULTA has recently came back into an area of support that originally started after an earnings beat in 2016. If you don't know what ULTA is just ask your girlfriend where she goes to spend $300 on shampoo every month and there's a 70% chance her answer will be ULTA. I know because I've spent hours in this store watching women drop car payments on hand soap for there hair.
Recently I started to nibble down here vs the recent lows after Valentino called it out, and as of late it continue to get tighter in this range. Now ULTA pulled back quite a bit in late 2016 however as of late has been putting in higher lows and showing us that there is a seller at 260. Now you or myself dont really want to be trying to tick 260 and be perfect. Maybe you do, however for myself at least, I will continue to DCA so that when 260 is setting up I can add however my cost basis will be much lower where any shake out is not going to faze me.
Big Picture Target $315+
Big Picture $260
The Big Picture's Updated
The Big Picture AXDX $48+ 12 Month Price Target
AXDX is a healthcare and medical equipment company that has been a name we have trade a few times on this $30 breakout as you can see from the weekly this $30 level has been setting up for 4 years.
Added $23 however could not get the love it needed to continue higher, had a breakeven stop for the $22 DCA and took those off for breakeven, still holding the $23 buy and will continue to buy $23 next time its ready to test that level.
Big Picture Target $48+
Big Picture $30.05
The Big Picture AFL $60+ 12 Month Price Target
This $46 level in AFL has been setting up all year and as of late it is handing us the tightest risk entry as possible, now sure the real out is $1.50 lower however we are seeing how we can sneak in on less than $.50 risk.
As of late AFL held above $46 to the penny, now that it is flagging near highs after strong earnings, I will look to add above $47 vs $46.
Big Picture Target $60+
Trading Experts Turks and Caicos Summer Camp Recap
The weekend debauchery is over and its back to business, however it can't hurt to recap what Shake has dubbed our TE Summer Camp that no one under 21 would every be allowed to attend lol.
As you might remember from Exuma, the young JD was asleep for 72 of the 74 hours we were there, however on this trip exiting the plane with half a dozen beautiful ladies in tow, he kept those eyes opened the entire trip. Darin took the crown from JD and even Willy, the dogo that we took out for the day was even concerned when he took over the wheel and started driving the boat.
All jokes aside, it was great to meet even more Alpha members on this trip and to learn about there backgrounds and the improvements that they have made. Darin and Max big ups to the progression you both have made and your stories still give me goose bumps.
On another note please start calling Rob Learn, Rob 2 Times, as on the last day he (I kid you not) lost his passport again!!! Only to find it minutes before they were about to ship his ass back to the embassy, talk about a round trip trade that one was.
It is safe to say that everyone has returned home with a subtle English accent as Kris always kept the group laughing no matter if it was with him or at him (he may or may not have grinded with a tranny and he was in front). The look on his face is one of someone who just laughed so hard they shat themselves (as Kriss would pronounce it).
We wanted to take the lessons to a more literally sense, as you can see here Shake is telling JD when its time to load the boat and when its time to jump ship, however for JD he has no stop loss.
All in all it was another successful trip in the books and our largest group to date. On our end (Shake and myself) its amazing to see how 15 people who for the most part other than speaking in a group chat can so quickly come together and act like family, have a great time while still learning even if its how Kriss can finish a water bottle in 2 seconds.
(JD is low key drowning)
Big thank you to everyone who came, Darin, Max, John, Kriss, Rob, Carl, Gina, JD and his half a dozen sweethearts. The next trip will be in December, location is still TBD.
Hopefully we will see you than!
Have a friend that is interested in trading? Bring him or her in and you both will receive a free month, contact Ben for more info!