The Big Picture Outline
- Broad Market Outlook
- Sector Rotation
- New Big Picture Idea
- Updated Big Picture Idea's
(click on each chart for a bigger version)
Broad Market Outlook
The melt up to new all time highs continues as the major news out of Davos, all major banks and talking heads have been higher, higher, higher.
Now this news is good for us, however we have to understand the reasons behind it and take a peek behind the curtain. When Dalio comes out and says that you will look stupid to be in bonds and foolish to miss out on this equity rally.
It makes sense looking at the big picture, as rates rise, it will hurt bonds, if it hurts bond holder some will sell. If they sell, where will they go? Most likely to stocks and the more people buying stocks, equals higher prices.
For the guy with $150 Billion dollars worth of stock, he has millions and millions of new buyers entering the market that he can sell stock to.
Sector wise, we did a great job being prepared for the Consumer Staples breakout, WMT up almost 10%, KO up 9 days in a row, as well as the sector as a whole up around 5%. Which for now, its up stops and hold.
The other major sector that is setting up is Telecom (VOX) that we will go over in detail as we dive into sector rotation. While most major markets are all very extended on a shorter term basis. Regardless of this fact, if a name is setting up, do not let the SPY or any other market or sector keep you out of an A+ set up. If the name has been flagging for 2 days, its not an A+ set up. Leave the cowboy hat at home.
SPY 300+ 12 Month Price Target
The magnet to SPY 300 continues, as we post in the chat earlier this week with virtually every major bank touting the SPY 3,000 and an optimistic outlook for the year ahead, we should be seeing it soon.
Remember we trade stocks not the SPY, as the market continues its run, this is the time to clean up, take your trades and don't let the markets high keep you out of an A+ set up.
Just when everyone is in the rug gets pulled and the Wall of Worry talk will quickly turn to the Slope of Hope talk, as you have seen in other stocks and sectors. There are still plenty of people on the side lines missing this rally, its when they get in that the run is over.
Nasdaq 8400+ 12 Month Target
The Nasdaq finally showing it wanted to break above this upper range of resistance than should eventually become support for the market. Anything above 6700 is worth a hold.
MDY Mid Cap Stocks 400+ 12 Month Target
Mid Cap stocks punching up through new highs, anything vs $340 is fair game.
IWM Small Caps 200+ 12 Month Target
Small caps showing just a little bit of indecision up here, we can see how $144 was resistance and now is showing us it is acting as support. Anything above than line in the sand is worth a hold.
VGK Europe ETF $82+ 12 Month Target
Europe continues its breakout after it cleared its major $60 level with confidence. We should see an eventual move back to highs in time. For now anything above $56 is fair game.
VWO Emerging Markets +$58 12 Month Target
The Emerging Markets and Europe were left for dead after 2008 and are finally started to join the party, if you have any emerging market etf's or mutual funds in your 401k this past year they were your best performers and you might want to take some profits, dont. This is the time to be patient and up your (mental stops). Should see a retest of $58 sooner than later and anything vs $42 is worth a hold.
EWJ Japan +$85 12 Month Target
Japan has been dead money for almost 20 years, however the chart is showing its hand at $66. As tough as that $66 buy is going to be, it will be a must. We have seen this set up time and time again, hard to put on in the moment, in highlight the smartest buy.
VCR Consumer Discretionary
The longer the consolation the longer the breakout as we can see in the Consumer Discretionary sector. Sector wise this is where tighter stops come into play because whats hot today tends to turn it tomorrows old news. $168 to keep it really tight, $164 if you have a bigger appetite for risk as a place to exit when the tide turns.
VIS Industrial Sector
After stocks or sectors flag and flag, we tend to see the more top right they become, the smaller and smaller the consolations or flags as more people chase whats hot. For us that's fine, just have to keep the stops tight to avoid the rug pulls. GD, RTN, LMT legit rockets, for VIS the line in the sand is $148. Ride the rocket as long as you can on the way up.
VHT Healthcare Sector
Healthcare still ripping higher as the Industrial and Consumer Dis have shown us these sectors can really run. Stop at the weekly low $168 for now as it starts to get parabolic.
VGT Tech Sector
Tech continuing higher after a two month consolation, same smaller flag near highers, new line in the sand is $176.
VFH Financial Sector
VFH has gone around the measured move of this flag that we have traded time and time again, there are still plenty of names in this sector setting up so take them as they come however keep those stops tight. If already in, risk is around $1 off highs so if we start to see $74 get tested could see a retest of this prior $71 resistance level.
VDE Energy Sector
We caught a decent move in XOM as the energy sector started to wake back up and break above this macro wedge, however the sector has some what fell off our radar after the quick moves some of the major players had (SLB HAL CVX) while XOM being the largest had the slowest move. For these names they will need some time to digest the major moves they've had.
Telcom is setting up near a major inflection point as you can see this major downtrend line for over a year. This past week I have been adding up through $92 and $93. Stock wise VZ is setting up near a major level ($55), T's major levels are $39 and $41, and TMUS started to poke its head above its $64 level with a major level at $68. Among these major players, TMUS does not pay a dividend and should be the one to lead/show its hand first.
In this sector among the other more dividend paying focused sectors these tend to be very hard breakout stocks to buy and more of support/ buying into pain stocks. As these dividend paying stocks pull in there yield increases which is when the people hunting for yield come in and support the name.
People who are focus on income tend to be much older, think retirees. Also remember that these old people tend to have more money than the kid with $10k in his account buying the breakout.
Have to remember when a stock pays a dividend, most people are not "as" nervous to puke into pain because most will rationalize that they are being paid to hold. That does not mean that these stock still cannot get destroyed and if you have ever gone "yield hunting" you learned that lesson the hard way. As I have many, many times.
Yield Hunting is when you are looking for stocks will high dividend yields. Which are cheaper stocks, if a $50 stock pays out a 5% dividend a year ($2.50) like VZ goes through a rough patch and drops to $25 that $2.50 dividend is now a 10% yield. Novice investors will hunt for these out sized dividends and sometimes it works out, however more often than not when you hunt for yield, the company end's up cutting the payout (causing the stock to plummet even further).
In recent times, GE was a prime example of yield hunting, it was paying out just under $1 a year, ($.96) and cut the dividend in half, to $.48 a year. When GE was falling off a cliff and was at $18 the dividend yield was 5.5% causing some to buy GE as they were hunting for yield, than the company came out and cut the dividend in half. The yield went from 5.5% to 2.25% overnight. The stock has still sold off 11% more since than and as a result the yield is now up to 3%. Remember as the stock falls, the dividend yield increases. As you chase yield, you tend to chase a falling stock.
Dividends should be looked at the sprinkles on the ice cream sundae, never buy a stock simply because it pays a dividend.
For normal sectors (outside MLP's and REIT's) the average dividend yield is around 1-2%, while a high payer is in the 4-5%, than you get into MLP's that can be 5-10% and REIT's most are in the 5-15% range. Remember the higher the dividend usually the less growth is left in the stock for much appreciation on the share price.
VDC Consumer Staples
Great close for the consumer staples sector this week that we have been focusing on, WMT continues to grind to $110 as we noted in last weeks newsletter. KO is up for the 9th day in a row, and Consumer Staples are still a hold as it continues to show us this is the time to be patient.
VPU Utility Sector
Utilities have started to show a little footing down here, it recently broke a major trend line however some buyers have came back in. As the broad based euphoria continues, its time to take notice, when your ordering a bagel and a 65 year old is telling his buddy how he lost $5,000 in bitcoins and is now buying 2,000 shares of SQ saying its the future yet making $.80 in it as a day trade, red flags are waving. Started to add to VPU up through $112 and $113 vs $110. Always protect your downside.
REIT's continue to roll over as we can see the bounce it had could not be sustained. A break of $78 should see a quick move to $76 major support is around $72. Sector still an avoid for now until the dust settles.