Category Archives: Hot Stocks

FOMO Is In Motion

All three indices closed at a fresh all time high on the same day last Friday!  A vague promise from the White House about the pending signage of the phase one trade agreement pumped the market to make a blue sky breakout!  We have been here before in the last 20 months during the trade war

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Risk On!

Last Thursday the 10-year treasury yield took out the September swing high of 1.903% and closed above it on a weekly basis.  So from the yield perspective, this is a risk on environment, money will be forced to flow out of the safe haven into equities.  The defensive sectors (XLU, XLP and XLRE) were promptly sold off to form a weekly cycle high.

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More Signs of the Resumption of the Bull Market

Last week the S&P 500 cash index closed a hair below the all the time of 3025.86.  No one can argue the strength of the price action.  It is climbing a huge wall of worry and repeatedly dispelled the worries of an imminent recession that have dominated the media.  We came to this conclusion by examining the internals of the market.

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The DOW Cycle Location 11/02/2018

In the last five trading days, the DOW was able to produce a relief rally that retraced half of the shock drop from 26951.81 to 24122.23.  But the S&P 500 and Nasdaq were unable to retrace 50% and the small cap couldn’t even retrace 38% of the down move.  Overall the market is weak and it is being popped up by the blue chips.  Apple’s earnings report has revealed that Apple is no longer the hyper growth company like it used to be.   Amazon’s 28% selloff from 2050.50 to 1476.36 also points to the difference of this correction relative to all the corrections since March 2009.

It would be enticing to try to buy the prior bull market leaders during this correction, getting a discount of the old expensive stocks.  But the fact is that many growth leaders in one cycle do not repeat in the next cycle.  For example, the dotcom leader Cisco never came back as a market leader even after 18 years.  We believe this October high is an import high that signifies the end of a super easy money policy.  The market will need some time to heal from the structural damage.  The October low will be tested again sometime in the future.

It will worth a while to sit out the market to observe future leaders before the market cycle low is confirmed.  There will be many stocks that will have super earnings growth but the stock price will not advance due to the general market weaknesses.  Those stocks are the candidates for the next bull market cycle.

Technically, the DOW was supported by the lower channel line while S&P 500 and Nasdaq have violated their lower channel lines respectively.  It has only been one week since the low was made.  It is way too soon to say that the temporary low is in place and the year end rally will start from here, although it is likely due to the timing with the midterm elections.

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A Rare High Tight Flag Situation

As we have stated before that the market is in a 4-year cycle high to low correction phase, we shouldn’t open new long positions.  But we do have a rare high tight flag situation that warrants your consideration.  This formation is so rare that had succeeded several times in the past during the market downturns.

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