Friday, December 1, 2017

Banks Rip, But Weekly Charts Still Say Buy

We saw a huge move across the Financial sector this week and I don't believe what we are seeing is a top. On the contrary, I think this week's signal represents a brand new opportunity to add to or establish new positions in Banks. I am still adding to positions right here and expect much more upside in the future. We could certainly see consolidation short-term, but long-term this remains an emerging trend.

Regional Banks KRE
This is exactly what I look for in an ideal long entry. We are seeing volume expand on a move to new weekly closing highs after a 12-month sideways consolidation. In fact this was the largest weekly volume in the history of the KRE. The second highest volume came on the post-election breakout move which continued for another 14% over the next 4+ weeks. Momentum also is emerging from a highly coiled pattern which is indicative of significant intermediate upside potential.

Regional Banks tend to be the most sensitive of the Financial stocks and when they are in position, good things tend to follow. Check out some of the other moves that occurred this week.

JPM new all-time highs

GS Cup/Handle suggests a move to the $280's to start

BAC Breakout/Retest/Resume

WAL

Members of zentrendstrading.com have been long in the Regional Bank space for some time based on larger timeframe patterns. If you would like assistance catching big moves, learning to identify strong setups, and managing positions from entry to exit, please inquire about our offerings.   


Sunday, November 5, 2017

Mystery Chart: Bull or Bear?

Its always a fun exercise to remove all potential bias from a stock and simply strip the price action down to the bare minimum. From a supply and demand standpoint we should be able to evaluate whether or not a particular opportunity offers a favorable risk/reward.

With this in mind, take a look at the mystery chart below: Is it offering a Bullish opportunity or Bearish based only on the supply/demand dynamics of the stock?


I'll be interested to hear your feedback. The goal of this is not to try to guess what the mystery stock actually is, but rather would you want to be a buyer or a seller based on the info above alone.  

Later in the week we will revisit this chart and see what readers think is the best course of action. 

Saturday, October 21, 2017

Interest Rates to Never Be Lower

I have been building a thesis over the past year or so that Interest Rates are in the process of bottoming on a multi-decade timeframe. It is my view that we will never see lower rates in my lifetime.

As we know from historical study, markets often telegraph turns in economic conditions well ahead of mainstream evidence being made available. Prices will top out on the best news possible and bottom on the worst. When the conventional opinion is leaning one direction, the market begins to tip the opposite. It is up to us to see through the noise and listen to what the market is really telling us.

This brings me to the 10-year Treasury Yield (TNX)
   The first piece of evidence is the price action over the past 5-6 years. In 2012 the TNX made a new low not seen in its history. Rates were able to rally for much of 2013 (recall the bull market for stocks during that year as well). We then saw a steady decline over the next two years which culminated in an even lower low that held for less than one week before reversing back higher.

Note that momentum was much higher on the 2016 low compared to the 2012 low, creating a strong positive divergence. Since the beginning of the year Rates have consolidated orderly and have formed a Bull Flag pattern into the now rising 20 Month SMA. Regardless of the asset class, this is my bread-and-butter setup and has led to many monster upside moves over the years for me.

From a price and momentum structure this is what I would call a multi-year Double Bottom pattern. Often it is suggestive of major lows being set and very strong price recoveries ahead.

I want to look at the structure of momentum by itself as well.
This is the momentum pattern going back to the mid-70's. I use MACD differently than most; MACD is an excellent indicator of trend. When momentum is above the Zero line price can be considered to be in an uptrend; when momentum is below Zero, price can be considered to be in a downtrend.

If we look at this chart it shows us only one time in the last 40-years when Rates were in a sustained uptrend (1975-1982). The rest of the time momentum has been < Zero and only breaching the line for very brief periods before retreating once again. This is downtrending behavior.

It should be noted that the activity over the past few years has been changing from the previous pattern. At no point in the last 30-years has the indicator been able to move > Zero and then sustain above the line. Each attempt to get above Zero was then followed by at least 5-years of action back below Zero.

However, the most recent movement has recovered Zero within 2-years of the prior visit. The pattern appears to be changing for the first time in its observable history. The more time momentum can hold above Zero, the more confidence we can have in this thesis.

So how do we make money based on this theory? If Rates are going to increase steadily over time, what will be the primary beneficiary of the change in trend?

In my view it is Bonds that will suffer the most, while Bank stocks and especially the Regional Bank stocks, set-up to benefit the most.

 JPM

  KRE Regional Banks

These formations are a decade long or more and have only made new highs within the past year. Typically the length and size of the base gives an indication to the length and upside potential of the price trend to follow.

As the saying goes, "the bigger the base, the higher the move in space". In the examples above, JPM has been building a 17-year horizontal base pattern. Regional Banks have been in the process of emerging from an 11-year base of their own. The upside that can come from these formations we know from studying the great winners of the past. In my experience and study, these are some of the highest probability structures to focus long-term positions on, and we have been doing so.

Members of zentrendstrading.com have been receiving alerts and position management education in the above names as well as others in this space. If these trends can persist we may be establishing positions that last for the next decade or more. Just this week the Regional Bank space is offering yet another opportunity to participate in the blooming trend.

If this is something you would like to learn more about please contact me @ZenTrends on Twitter or visit our website.

Thursday, October 19, 2017

Food For Thought


This is a yearly chart of the SP500 from 1962 to 2017. Is it just me or do those two periods look similar?

-From 1963 through 1980 the market remained in a sideways trading range (17 years)
-From 1999 through 2013 the market remained in a sideways trading range (14 years)

Trading volumes are notable as well; Heavy distribution volume came in through 2000-2002. The level of supply that was created went on to contain price for the next decade.

It wasn't until the last few years that we began seeing some accumulation volume come into the market. Following 2006, volume declined every year until 2012.

Trading volumes are now increasing as prices rally away from the base. 

The previous instance when prices cleared decade long range highs, the market rallied for the next 18 years with less than a handful of negative years during that period.

The current market is in year 5 of the most recent breakout.

Is it possible we remain early in this emerging trend? Does it look like America is failing?

Yes. No.

Monday, October 9, 2017

6+ Week Bases

Something I always like to do as an exercise is go through my positions or watchlists and find periods of sideways consolidation lasting 6-weeks or more.

The process of looking for these periods of consolidation I feel offers a glimpse of the quality of setups currently in the market. These setups also tend to offer very favorable risk/reward scenarios.

Currently these are some I find particularly attractive:

FB
AMZN

CRCM

SIRI

JPM

FANG

CVLT

HTBK

MDSO

Periods of consolidation tend to be followed by periods of expansion. The length of these bases can lead to explosive upside. If we are wrong we know so quickly as the pattern will fail to hold the breakout area.

These are all positions our members have been following and/or participating in based on larger monthly patterns for some time. It now seems there are additional opportunities appearing over the intermediate-term as well.

If you would like to be a part of the ZenTrends trading community to follow along as we identify, manage, and trade these positions and others, please visit our site at zentrendstrading.com

Tuesday, September 26, 2017

Earnings Reactions

I am a believer that insider trading exists and that the “smart money” has access to privileged information when it comes to company’s data, such as earnings. I mean, do we really think Yahoo Finance gets the same info on the same timeline as Goldman?  

If you study price action like I do, you begin to see patterns where odds begin to favor a particular outcome. I hear a lot of talk that “you can’t game earnings” or “it’s a completely random event”. While there is a certain degree of randomness in any market situation, I do think it is possible to “game” earnings reports with better than 50/50 probability (and I do know successful traders who do so).

If my theory is accurate and Smart-Money investors are privy to exceptional information ahead of the general public, we should be able to glimpse their behavior ahead of a market moving event. As the saying goes, “the majority of surprises tend to occur in the direction of the dominant trend”. Of course not all surprises follow this thesis, but overall more than 50% do in my experience.

An example of this is occurring right now after-hours with initial earnings reactions to Nike (NKE) and Micron (MU).


I am in the camp that Big Money is right more often than not and they will telegraph their moves to those who are watching. I always watch how a stock trades about 6-weeks or so ahead of earnings

MU

Notice the trend into the earnings report? Major buyers have been bidding the stock higher in anticipation of a strong result for the last quarter. Did they have exceptional information? I don’t know. But what I do know is that they were right to do so as MU is trading higher by +3% on their initial reaction following the report.

Contrast this look with Nike over a similar period; they too announced earnings after the close today:


Nike is currently trading lower by -4% after-hours following their report.

Now, this could all be coincidence that MU trading in an uptrend while Nike traded in a downtrend ahead of the report, but I have seen this happen too many times to count to think there is nothing to it. I would conclude that investors where accumulating shares of MU for a reason and likewise distributing shares of NKE.

We can also point to examples where this wasn’t the case, again this isn’t right 100% of the time. But overall if we are watching the price action we will see patterns like this occur for a better than 50/50 outcome.

There is another pattern that emerges leading into an earnings event that can be a powerful risk reward; Looking at SQ as an example of how price will consolidate orderly ahead of an earnings report within an overall uptrend 

SQ

When a pattern persists like this with a series of rallies and tight consolidations, it is a sign of lack of investor interest in selling. The orderly pullbacks show tight supply and suggest the Smart Money is happy to hold their shares for more upside to follow.

If we watch for the behavior of the largest investors we can get hints as to their overall knowledge and expectations. Since they are the “Smart Money” they tend to get it right more often than not, and ultimately that is what this game is all about. 

Saturday, September 9, 2017

Position in Review: ABBV

For several months now we have been long ABBV in monthly basis accounts. March provided the initial signal and then June followed through to new highs.


Both of these signals came off of bullish consolidation patterns and Inside/Up triggers off the prior month's tight range. Most importantly, the overall base structure here is what was so attractive to me.

Following the 2-year rally beginning with the Abbott Labs spin-off, the stock churned sideways for another 2-years. The action began to tighten considerably near the 20 Month SMA in early 2017, just before this recent leg higher began.

Once I establish a position in a strong long-term chart, I will begin to look for opportunities on the Weekly timeframe to add shares for a more aggressive trade.

 
The Weekly signal to kick off June was a combined Inside/Up pattern on both the monthly and weekly timeframes, this was the aggressive add spot for us. Price then rallied nicely for 6-weeks, pulled back in mid-August, and then kicked off again from a new Bull Flag pattern. This second signal was another spot to trail stops and add again.

The last two weeks have been vertical, trading higher more than +17%. Due to the series of very strong risk/reward entries we had quite an overweight position by late August. This surge has taken the stock into a notable level based on the monthly pattern that I feel warrants reducing some exposure, re-balancing the trade a bit.


As price approaches this 161.8 extension level, and due to our significant overweight holding, plus the vertical price action, I reduced some exposure (1/3) on Friday.

Price has extended substantially over the past few months and a consolidation would not be unexpected. Should that play out we will look for new opportunities to add back exposure in the right situation or continue to run our current holding should the stock rally further.

Based on the big picture look in ABBV I do not think this move is over at all and I intend to stay bullish until proven wrong. I have found great success following large base patterns over the years and this one seems like no exception.


If you are interested in receiving our live Weekly/Monthly trade alerts and being part of the ZenTrends Trading community please reach out to me on social media @zentrends. We are excited to announce that our expanded service offering will be available in the next few weeks.