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
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New Business
Trade Theory 11/31
Trading Experts App 12/31
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Broad Market Outlook
Very wishy washy week where the levels of euphoria would quickly turn to pessimism and vice versa almost hour by hour and day by day. By the close on Friday, Small caps showed us there hand that they more than likely want to retest the correction lows, mid caps were not to far behind along with the Nasdaq saying to wait up. Now speaking with more novice and inexperienced traders outside of TE, most were expecting lower prices and quite frankly not too scared. There were quite a few who had some painful losses and stuck in positions turning against them with no exit strategy other than hope for the turn. Even with this there was not much panic from the DM crowd that I could really find. Chart wise lower prices seem to be in store however just when everything looks it worst tends to be around the time to be prepared. As always the more prepared the less scary it tends to be.
As a group this week, it was great to see the continued improvement as a team during tough market conditions, sure there were a few people chasing action when they should not have been however we are humans, not monks. Remember that loss aversion can make these short periods of pain seem much worse that they actually are. (loss aversion - from a psychological standpoint losses hurt twice as much as winners, and as your winners grow in size they tend to become even less rewarding ex 1st comma day vs 10th comma day, yet first or 10th comma day to the downside tend to fell even more shitty). If you are not aware of this, this tends to be the times when most disciplined traders throw away there tool belt and pick up a new one from the flea market because it was such a cheap deal.
The group chat is a great way to cleanse idea's, if you are afraid to post a chart and a full GP with confidence in front of the Alpha's than more than likely the idea is a pass. Even if you do post it, there is still a strong possibly its a pass. Remember its much easier to voice an idea and be told its a pass, than putting it on in silence and losing when someone who can look at it objectively and saw what you were missing. Embrace this, avoid trying to fight it.
For the week ahead we should be aware of the obvious weakness globally and in our background, where most charts were filled with doji's and bearish engulfing candles by the weeks end. We still need to be prepared for what would fuck the most people. As virtually everyone has there head down expecting continued downside, what if we are all wrong? Our backup game plan should be as strong as what we expect.
Consumer Staples showed us this week that they are here to play ball and this should be a sector that we focus on for the week ahead. Financials broke a major support area, Materials look like lower prices are in store, Tech is near a macro level of support (VGT 180) that if broken might knock them off as our sector leader, and mostly every other sector pulling in.
Consumer Staples KO 46.55, WMT 98, KHC 58, TSN 64, K 72, TAP 62 (also a way to play the weed trade).
Stocks that I will be keeping an eye on for the week ahead are BA 370, CMA 97, SAFM 105, ZGNX 44, HPQ 25, CARA 21, MMM 204, MU 44, FB 160, HI 51, FRGI 30, XPO 100 and GWPH 150.
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Macro Rotation Outlook
Cheat Sheet
Nasdaq h'ing over
S&P 500 h'ing over
Dow Jones h'ing over
Mid Caps h'ing over
Small Caps h'ing over
China breaking down
Japan near support
Europe near lows
Emerging Markets macro downtrend
India near lows
Russia range bound
10 Year breaking out
Bond's breaking down
USD flagging
Oil back near prior resistance
Nasdaq 8400+ 12 Month Target
Felt like a week of indecision, a day up, a day down, with no real buyers showing there face, we should be prepared for some further weakness, if we do head lower we should keep an eye near the major support area which would be the time we can scoop up some great stock.
SPY 300+ 12 Month Price Target
Dow Jones 300+ 12 Month Price Target
Like the other major markets the Dow 30 were also stuck in a tight range this week, where it seems it might still be too early for this to be the low of this move.
MDY Mid Cap Stocks $400+ 12 Month Target
Mid caps showing us how it wants to test the 366 level that has not be touched since April, if we take that out we should expect to retest correct lows.
IWM Small Caps 200+ 12 Month Target
Small caps which have been leading the charge in both directions is showing us that this was just a small pit stop and than a break of these lows should send it near the correction lows from earlier this year.
GXC China +$150 12 Month Target
China has been getting me a nice little beating however when you buy a country like China even when your wrong the beating isn't that bad, down about 10% and after the dust settles will start to DCA on the way up to improve my average.
EWJ Japan +$85 12 Month Target
Was able to catch a nice trade in Japan and take mostly all off into the pop, after seeing the overseas markets continue to get beat up a flush of support seems to be in the cards. With no real position I can watch from the side lines until the dust settles.
VGK Europe ETF $82+ 12 Month Target
Similar to China with a major break of support, time to wait until we can buy on the way up as they tend go much lower than we can imagine.
VWO Emerging Markets +$58 12 Month Target
Still in macro downtrend.
INDA India +$53 12 Month Target
Similar to Japan, India was a name that we did not have much exposure to avoiding the 17% drop off highs, started to nibble near lows however looking at the bigger picture still plenty of room before we should expect a major turn.
RSX Russia +$30 12 Month Target
10 Year Treasury Note Yielding 3.20%
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 3.20% (higher = good)
Right now the 2 year Bill is yielding 2.90%
BND Bond Market
As rates rise expect to see the bond market continue to put in new lows.
USD
The USD has been having a hard time holding this area, remember weak dollar good for us.
OIL
After a monster run since August Oil is starting to pull back into prior resistance.
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.
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Sector Rotation
Key points
- 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.
Cheat Sheet
VGT 180 major line in the sand
VDE breakdown seems in the cards
VIS 138 DCA
VOX macro downtrend
VAW lower prices seem in store
VCR h'ing over
VFH major support broken
VNQ lower price seem in store
VDC only one at the party
VHT lower highs, lower lows
VPU flagging near resistance
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Sensitive - sectors that have moderate correlations to overall market conditions.
VGT Tech
This is probably one of the most important charts in this newsletter, Tech which has been leading us higher for the past two years is running into a major area of support for what seems to be the 6th time. We all now how the more often a stock, sector or market continues to run into support the less likely that support area is likely to hold. Given the obvious crazy run they went on and the overall weakness in the higher beta tech names, it seems as if a perfect storm is forming to break this trend that has held up for quite some time. 180 will be a major area to keep an eye on going forward.
VDE Energy
A break of this low and we will start to be getting into a value area in energy that will be worth started to put money back to work in this sector.
VIS Industrial
VOX Telecom
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Cyclical - sectors that are more sensitive overall market conditions.
VAW Materials
VCR Consumer Discretionary
Discretionary's showing us that they took want to smoke this prior low and have a crack at the correction lows.
VFH Financials
VNQ REIT
REIT's still in a wide range however not quite yet into an area where we want to start picking up shares.
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Defensive- sectors that tend to outperforming during sub par market conditions.
VDC Consumer Staples
Regardless of economic conditions, people will still buy toilet paper and tooth brushes while they might avoid buying that item that is not really needed. We are seeing this week that Staples said we are here to play. Above 144 we should see an eventually move toward prior highs.
VHT Healthcare
Healthcare was on such a monster run, and since has been quite weak, still seems that there is more blood in the waters before healthcare will be ready to retest the prior high.
VPU Utilities
When people are scared they run to what's safe.
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Sub Sector Rotation
Cheat Sheet
IBB
ITA
IBB Bio Tech
The Bio's have been quite emotional during this turbulent time and that should be expected as fear rises people tend to chase the safe guy not the leather jacket wearing guy on a motorcycle.
ITA Aerospace & Defense
ITA still showing us that 206 is a major area however it might need some time before it can continue a move back to prior highs.
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The New Big Picture Set Up
The Big Picture BA $420+ 12 Month Target
Scanning thousands of charts, BA continues to be the only name that for the most part has not gotten too effected by the overall weakness in the markets. It is continuing to set up through this 370 level. Now it is not A+ since it has already taken out the level, it is giving us a great chance for a sneaky buy back when we usually forget about the name after the initial move.
Big Picture Target $420+
Big Picture Entry $370.05
Stop $349.89
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The Big Picture's Updated
The Big Picture HPQ $32+ 12 Month Target
We took this HPQ in September and it went on a nice little $2 run however just wasn't ready, now this is a decade long level, its going to take some time.
HPQ is reminding me alot of PFE, where it had a quite move, came back smoked anyone trading it than months later ripped. If we can see some more weaknesses in HPQ, we should be able to get some great stock for a move higher however this might take a few months.
If you remeber PFE, we caught a 2 day 6% move in PFE which is a huge move for this time of value name that HPQ also fits into. After the breakout it ripped through support and took months to set back up. Something similar that I expect to see in the overall market and most stocks. Months and months later it finally went. This is what I am expecting for HPQ.
HPQ still seems like it needs some time to settle out, will be keeping an eye on $25 to pick some up.
Big Picture Target $32+
Big Picture Entry $25.05
Stop $18.89
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.
For how beat up the pharma's were this week and how weak ABBV has been overall this year, she held up pretty good, the 96 level is still intact for this downtrend break.
ABBV seems as if it is bound to smoke this low, which is fine we are only looking to add on the way up.
Big Picture Target $125+
Big Picture Entry $100.05
DCA $98.05
DCA $96.06
Stop $87.89
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 still is settling up and in a bit of a wide range for a lower priced bio, will need to give it some time as it settles out.
Big Picture Target $40+
Big Picture Entry $24.05
DCA $21.05
Stop $17.89
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