The Big Picture Outline
- New Business
- Broad Market Outlook
- Macro Rotation
- Sector Rotation
- Sub Sector Rotation
- New Big Picture Idea
- Updated Big Picture Idea's
Broad Market Outlook
This week we saw some red in the waters from a terrifying pull back of 1.7% off all time highs. The market does a great job of giving a false sense of confidence. April, May, June, July, August and September all higher prices, than we get a little 3 day pull back and most people's egos are at lows wondering if they should start shorting or to pack it in. The market cannot and will not go up each and every day. If you only want to play when the sun is shining, the market will chew you up. You need to plan for and expect weeks like this and quite frankly the two days down is nothing to boo hoo about. Globally its much more painful to be overseas, India is down 17% this month, China is near lows, Europe is near lows, Emerging Markets cant catch a bid. While the SPY is at highs, DOW is testing new highs even with Small and Mid Caps breaking down, giving us some red flags that our markets can too go down. Global markets tend to move in a broad sense in tandem, if mostly everyone is weak, we should expect some weakness as well. No matter how strong you think we are.
Shake and my self's role is to remove the stuff that gets in your way which tends to be all the fancy lingo and terms that has nothing to do with a simple trade. These fancy terms that we see getting throw around tend to give a false sense of confidence in a trade that is not needed. We are here to remind you of what you need to do in the first place. A bull flag is a bull flag, a bear flag is a bear flag, this isn't rocket science. This is a simple game of human psychology against oneself.
Sector wise virtually every sector pulled in this week and closed looked quite weak other than financials. Now markets and sectors tend to not just drop from highs to lows in a straight line, they tend to bounce around hence why we were saying to avoid trying to short into the 3rd red day in a row as your late to the move. If we get a bounce next week and your in a position that you can free up for breakeven, those tend to be gifts worth taking.
Stocks I will be keeping an eye on are KORS 68, HI 53, ABBV 96, NEWR 92, SIVB 330, GWW 360, LLL 215, XPO 116, BLK 480, JPM 118 and TRV 132.
Macro Rotation Outlook
Nasdaq pulling into support
S&P 500 pulling into support
Dow Jones below prior highs
Mid Caps breaking down
Small Caps breaking down
China near lows
Japan pulling back
Europe near lows
Emerging Markets macro downtrend
India down 17% this month
Russia range bound
10 Year breaking out
Bond's breaking down
USD range bound
Oil breaking out
Nasdaq 8400+ 12 Month Target
Retested prior highs and is pulling back, something that we have seen a thousand times, also that break of the step uptrend is healthy, seems like we will be in a range bound market for the time being with 7700 being resistance and for now support to be determined even a pull back to 7000 which technically would be a correction would be completely fine.
SPY 300+ 12 Month Price Target
200 days trending higher and 2 down days and everyone gets there panties in a bunch, you should embrace and expect the market to pull back, the market moves in waves, it comes in and goes out, it doesn't just keep coming. One could wish I know.
Dow Jones 300+ 12 Month Price Target
When it comes to ETF's or buying the market as a whole, you tend to get paid as Buffet said when most are scared and sell when everyone is happy. The reason why this tends to pay when buying an entire market is that the odds that it is going to drop 30-40% more after dropping 10% is much less likely because it is a basket of stocks. One stock can easily lose 40-50% in a month, however the odds that the top 30 largest companies in the US will all do that? Not so likely, this is why when it comes to ETF's your paid to buy pain.
MDY Mid Cap Stocks $400+ 12 Month Target
IWM Small Caps 200+ 12 Month Target
Same as mid caps however small caps which lead the market on the way up is still sprinting ahead showing us that he can go lower after breaking 3 of the last pivot lows. $160 will be an interesting spot to see if that's where some buyers come in.
GXC China +$150 12 Month Target
As we have seen in the other major markets when its banging on support, its most likely going to see lower prices, after the shake that we will look for the next deal while China is on sale.
EWJ Japan +$85 12 Month Target
Glad I was able to get off some costly stock near the highs of this most recent bounce now as long as it can put in a higher pivot low Japan should be in good shape to eventfully retest highs.
VGK Europe ETF $82+ 12 Month Target
The more it hangs around support the more likely its going to blow through it to the downside.
VWO Emerging Markets +$58 12 Month Target
Emerging Markets still hugging this downtrend.
INDA India +$53 12 Month Target
When support breaks look out below, luckily for us we took off most of our position in India in the last bounce and only bought back a bit before this breakdown, as shitty as this free fall looks, I will be looking to add to INDA after this 17% pull back off highs.
RSX Russia +$30 12 Month Target
Russia is continuing to show us that it wants to play in this range, so lets play, we bought low, sold into the pop now when it comes back into support we'll step back in.
10 Year Treasury Note Yielding 3.23%
As rates continue to rise we will continue to see the 10 year inch higher which crushes bond prices as you will see below the bond market just put in a new low as the 10 year is putting in a new high.
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 3.23% (higher = good)
Right now the 2 year Bill is yielding 2.88%
BND Bond Market
As rates rise expect to see the bond market continue to put in new lows.
The USD has been having a hard time holding this area, remember weak dollar good for us.
News - Saudi's will hold oil under $80
Chart - Don't care we'll see you at $90
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.
VGT backing into rising wedge
VIS flagging under prior high
VOX macro downtrend
VAW pulling back into support
VCR failed bull flag
VNQ pulling back
VHT broke support
VPU range bound
Sensitive - sectors that have moderate correlations to overall market conditions.
Tech getting right back into this rising wedge, coupled with the weakness that we have been seeing in the FANG's this year, there is no reason why tech cant get beat up for a round or two once it takes out the support line.
Energy still flagging as a whole after holding above $100 like a champ, still hard to put on any risk after it just stair stepped higher all month.
Industrials showing us it needs some time to digest the monster run it went on in the past few months.
Cyclical - sectors that are more sensitive overall market conditions.
Materials still range bounce after the fake out move when it could not take out the pivot high.
VCR Consumer Discretionary
With 25% of VCR being Amazon, its basically a proxy for how Amazon is doing, this pull in however is giving us a great future add back through those highs in time.
Financials like Materials still range bound, will be looking to DCA 71.
With rates rising it puts a damper on the RE business, as you can see REIT are continuing to roll over.
Defensive- sectors that tend to outperforming during sub par market conditions.
VDC Consumer Staples
Staples starting to settle out near this prior pivot area, in time will DCA through $140.
Utilities starting to show us that it wants to play in this range.
Sub Sector Rotation
IBB 120 DCA
ITA took profits, holding the rest
IBB Bio Tech
Will be DCA'ing 120 again.
ITA Aerospace & Defense
Took some profits in ITA, and will hold the rest if there is a next leg toward our target.
The New Big Picture Set Up
The Big Picture ABBV $125+ 12 Month Target
Been trying to catch this ABBV all year and caught a few cute trades in it however nothing to loose sleep over. For the last year ABBV has been battling with the $100 level, and as of late it has been getting tighter and tighter near an inflection point. I will be looking to DCA from $96 to $100 for an eventual move back toward the prior highs.
Big Picture Target $125+
Big Picture Entry $100.05
Stop $87.89GRFS is a pharma name and a somewhat new issue coming out in late 2016, now you know I hate cheap stocks so it takes a lot for me to want to buy anything sub $50 a shares. I have had my eye on GRFS for quite some time and have traded it once or twice. As of late we can see how $20 to $21.50 has been an area this stock has been support for quite some time while $25 its been running into seller. Let take a closer look at why this area looks to be a nice spot to sneak in.
The Big Picture's Updated
The Big Picture GRFS $40+ 12 Month Target
In the $20 to $21.50 range you can see how in the get me out range how much more of a sellers market it was however it still could not break support no matter how much people tried to sell there stock, now its back in this same range again and has continue to show that line in the sand. I hate these cheap name however this is one where putting some risk on should pay off.
Few cents from getting triggered, avoided the dirty gap down that got bought right back up. Same game plan going forward.
Big Picture Target $40+
Big Picture Entry $21.55
The Big Picture CE $140+ 12 Month Target
CE is a basic materials (VAW) stock that has been flagging near all time highs since June, as that sector which has lagged (been range bound as of late) once it is ready to poke its head above its prior pivot high, one could expect a basic material leader like CE to drift higher as well.
CE is still not ready however we are getting a better spot to DCA.
Big Picture Target $140+
Big Picture Entry $118.05
The Big Picture CARA $40+ 12 Month Target
What a beauty aint she? Now sure this isn't a hard level as $22 has been tested and broke a few times prior, however its back here for the 6th time over the last 4 years. Now lets take a closer look.
June it gaps up right towards that level, sells off hard (no big surprised after a 30% gap up) than it climbs right back however nope that $22 seller is still there, than over the next few months its fades and than climbs right back to $22, yet the seller is still there holding the stock down. Now is it going to break $22 Monday morning at 9:31 and never look back? Probably not, that's why we can DCA $22 if it does, hold it, if it ticks it and is still not ready, than you have plenty of ammo to add later.
CARA is showing us that $24 is the real level, most were in $20 to $22 and either made some coin or got stopped out breakeven, we can let CARA pull back and know that $24 is the real spot.
Big Picture Target $40+
Big Picture Entry $24.05
The Big Picture SIVB $400+ 12 Month Target
SIVB is a financial name that has been flagging for 5 months at highs, last week it did try to take out new highs, however it was not quite ready which tends to be a theme we run into. Now it didn't get smoked or sell off hard, just started to flagging in a 2% range.
SIVB is showing us how $330 is the level and after it could not break it after the rip it went on, I took my stock off for breakeven. Whenever $330 wants to break, I am down, however the downside didn't make much sense holding just yet.
Big Picture Target $400+
Big Picture Entry $330.05
The Big Picture DHR $140+ 12 Month Target
5 times DHR has rejected $104, is this the time it goes? That is anyone guess however the probabilities are a bit more in our favor are these continued attempted, lets just be real with ourselves. We can put on a tight risk buy on $2 here if she is ready.
Took some profits in DHR this week and will keep the rest vs breakeven.
Big Picture Target $140+
Big Picture Entry $104.05
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.
Sold the higher cost add for a $.12 loss per share, still holding the $43 stock.
Big Picture Target $60+