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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
Trade Theory 11/31
Trading Experts App 12/31
Broad Market Outlook
The SPY this week finally tickled into correction territory and while we are expecting some further continuation to the downside as the lows tend to be much more painful than we would like them to be. We need to be aware than the bounces need to be looked at as gifts to take advantage of as of. Just like in February when most wanted to start shorting it was the time when we need to start looking up.
The small caps all year have been showing us a sneak behind the curtain, they were the first to take out pre correction highs, they were the first to break major support and the same to also the first (almost) retest the prior correction lows. Instead of wasting your time on the SPY, keep an eye on the place that has been giving us the clues first (IWM). When we were at highs and we said how we expected to still take out new lows on the year it seemed far fetched however now, everyone seems to be on board with that notion. This is the time to set aside made up theories and time to start hunting for some charts.
Small caps, Mid caps, Defense, Bio's, Industrials, Materials, and Energy all are showing us signs that there are great deals in these spaces, while in Tech, REITs and Financials might need some time.
As you might have started to notice we have been focusing on the larger cap blue chip names, that tend to not get as beat up during rocky times, now they still can don't get me wrong, however a name like BA compared to a small cap bio, the large cruise ships tend to handle the rouge waves much better than the tiny speed boats.
As a group this week, it was another impressive week to see the teamwork and the large number of members being patient, sitting in cash. While some of the more risk on traders cleaned up such as Michael putting up a $10k week and Dangerous Dave putting up a $15k day. With that being said a major red flag was the disassociation of risk, when we are right we often fall on the crutch of "it was a calculated risk" however when we are wrong, it tends to be "the market is shit." Fast gains are great, just remember that the real money takes time.
Stocks I will be keeping an eye on for the week ahead CVX 112, WMT 100, KO 46.50, XOM 78, DWDP 54, UTX 126, CSCO 46, JPM 106, BA 370 and HD 180.
Macro Rotation Outlook
Nasdaq in correction territory
S&P 500 tickled into correction territory
Dow Jones quite a bit to go
Mid Caps 2 points away from prior low retest
Small Caps 3 points away from prior low retest
China near lows, slowing down
Japan recently broke support
Europe recently broke support
Emerging Markets macro downtrend
India back near lows
Russia range bound
10 Year breaking out
Bond's breaking down
Oil back in flag
Nasdaq 8400+ 12 Month Target
We saw how some buyers started to come in after we took out the recent low and we are bound for a bounce or two as its hard for the overall market to just free fall day after day, it needs some chop to trap the crowd. We are starting to get into the area where the value buys are, however expect these "h" patterns to continue to the downside until we get a really good shakeout.
SPY 300+ 12 Month Price Target
We finally tickled correction territory for all of a few moments before some buyers stepped in, now the last correction was quick (about 2 weeks top to bottom) while this one has been a bit slower. Still as I have said a hand full of times this year, I still expect us to put in a new 52 week low which should reach a level of max pessimism which is when I will really go hunting for deals. Shorter term we should expect some bounces however the crowd does not feel all too scared just yet.
Dow Jones 300+ 12 Month Price Target
Not much of a surprise that the largest companies are pulling back the slowest, people don't often abandon winners like Apple compared to there speculative bio techs. My focus as you might have notice has been all blue chip large cap stocks lately.
MDY Mid Cap Stocks $400+ 12 Month Target
Mid caps which have been following the Small Caps got with in points of retesting the prior correction lows. Will be looking to DCA above the prior days high.
IWM Small Caps 200+ 12 Month Target
Small caps which lead the market higher, has also been in the recent turn, instead of hawking the SPY, you should be keeping an eye on what the small caps are doing as they have be ahead of the pack all year.
GXC China +$150 12 Month Target
China still weak however its getting a bit more quiet as they drift near lows.
EWJ Japan +$85 12 Month Target
With Japan breaking recent support, its off the table for a bit.
VGK Europe ETF $82+ 12 Month Target
Europe too, after breaking support, its an avoid until the dust starts to settle.
VWO Emerging Markets +$58 12 Month Target
Emerging Market still in the macro downtrend.
INDA India +$53 12 Month Target
India after a mini bounce, right back to new lows, still will DCA above $30.
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.
The USD has been having a hard time breaking this area, remember weak dollar good for us.
Oil back inside the flag between $75 and $80.
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.
VDE 94 DCA
VIS 132 DCA
VAW 116 DCA
VCR 162 DCA
Sensitive - sectors that have moderate correlations to overall market conditions.
This is a very tricky spot for tech, since late 2015, tech has continued to put in higher lows, there were a few rare times where the prior low was taken out for a day or two before snapping back. As much as we loved tech and dated them for a while, it may just be time to start packing our shit and finding a new girl to date. Now if we can make it through this rough patch, we can just unpack our bags without her knowing. Trend lightly.
Energy has gotten smoked as of late and started to get back into that value zone where we can get good stock, started to nibble and will continue to look to add to VDE above 94.
VIS also got waxed during this pull in and recently took out an area of support that has held up all year, when it can poke back above $132 I have no problem DCA'ing.
Still in this macro downtrend.
Cyclical - sectors that are more sensitive overall market conditions.
Materials have completed the measured move of this breakdown of support, will DCA above $116.
VCR Consumer Discretionary
Discretionary's are back into this value zone where it could be worth picking up a share or two, just a short few weeks ago I had $182.05 buy stops in, now I can pick up the same sector for $20 off? Cant complain about that, will look to DCA above $162.
Was quite the fan of the banks however with that recent break of support, will need to see a little more blood in the waters before I want to cast my line out.
Still needs more time before I would want to add anything to this sector.
Defensive- sectors that tend to outperforming during sub par market conditions.
VDC Consumer Staples
Staples are starting to form a nice flag in this $10 range, will need plenty of time before this will be ready to breakout.
Healthcare, is like your ex, you know now how obvious it was that you needed to breakout, however with your current gf (tech) you just could not imagine her doing you wrong.
Like Staples, Utilities are starting to form a bit of a flag however it will need some more time to tighter up.
Sub Sector Rotation
IBB 106 DCA
ITA 196 DCA
IBB Bio Tech
IBB back in a great value area, above $106 looks great, a break of $100 could be a bit rough, will be adding above $106.
ITA Aerospace & Defense
We had a nice trade in ITA and now as it comes back into support it looks tempting however more pain might be in store.
The New Big Picture Set Up
The Big Picture HD $250+ 12 Month Target
Down the road that 3rd times a charm through $208 looks great however we don't want to be buying just than, as HD pulls back into a prior area of support I will be looking to DCA above the $180 area in time.
Big Picture Target $250+
Big Picture Entry $208.05
The Big Picture's Updated
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.
We have been trading this BA all year, take the moves that it has given us and even with the market in correction territory BA is still putting in higher pivot lows.
Big Picture Target $420+
Big Picture Entry $370.05