This week was a nice continuation of the rally. The SP500 closed at a new all-time high this week and seems to be on track to continue gains into the year end (even though many expect that to be the case). It is interesting to me that there is such a continued disbelief in the market as a whole from the "every man". They know its going up now and realize they have missed a huge opportunity, but are not about to go jumping into it now...They're gonna wait for it to come down. The media has been pumping out all kinds of investor sentiment data suggesting major euphoria in the markets right here and how a larger correction is absolutely imminent. Frankly I just don't see it. During times of market tops, CNBC isn't talking about a bubble in stock prices in almost every interview they conduct. If you tune into the major financial media outlets it won't take more than 10 minutes before a "bubble" is being talked about. Even the auxiliary financial reporting (blogs from traders/investors) are talking about how ludicrous it is that all this bubble talk is. There's a bubble about bubbles.
Listen, bubbles don't occur when everyone is talking about and looking for them. That's the whole point of a bubble; it is an irrational, frantic investing landscape and nobody sees it happening until after the fact.
What is one mans bubble, is another man's 3rd wave rally I guess. Because in terms of my sentiment feelings we are in about that stage of a 5 wave move. The 3rd impulse wave, which tends to be the longest of the 1,3 and 5 primary wave patterns, is the "confidence" wave. The participants are starting to get more comfortable with their market exposure and look to take advantage of any opportunity in front of them (that is, real traders and investors, not the news folks)...Very much a buy-the-dip mentality, which is highly supportive of stock prices in the intermediate term. Will there be a pullback? a real enough one that gets the Bears all frothy and then blows them out of the water? Yes and that would be the expected 4th wave correction. Which would lead to inevitably the 5th wave surge. That's the one the CNBC minions will laud as the "market than never will go down. How can it?" And that's when the top is near. Not here in "bubble world", but in "the market always just goes up" world. We aren't there yet. Absolutely nothing in my study of price action suggests that we are nearing a crash.
It
should be a little uneasy putting money to work at new highs. You're suppose to buy low, right? I am of the belief that if you are making a stock purchase and it doesn't make you a tiny bit queasy, then its likely not a good purchase. The ones you buy and you go, "oh man, that one could burn me", those become the best ones. Of course opportunities come from all areas of the markets. They come from lows, they come from highs. You just simply need to use your signals and follow that as your guide. Don't follow some financial analyst on tv, or your buddy's hot stock tip. Get a plan, get a signal and take it. Regardless of how much "sense" it makes to do so at new market highs.
SP500 weekly view
These are the dominant lines for the SP500 on the intermediate timeframe as I see it. Since our little nude chart show last weekend, these are the lines that seem most relevant to me for the health and success of this rally. You really need to be in this market above both these lines. I would say reduce some exposure on a failure of the upper line to hold as support and finally exit when the lower uptrend support goes. I would want to be VERY conservative below that level. That will be the 4th wave move I discussed above. A break of the uptrend support of the last years move, will be a secondary, counter trend correction.
That will be a dip to be bought and then will lead into the final stages of the Secular bull market. That move could last years. It could be the great move of our generation. I'm 30 years old and it would be perfectly reasonable to see when I'm 50 the ending to this bull market. That's 20 years, and when you look at history, these have not been impossible events. We have seen bull markets like this as new generations take the lead in the economy and drive growth higher. I am the "child of the Baby-Boomers", this will be a big generation for America. That's a very, very long term outlook, but that's the kind of thing I'm thinking about...Shorter term, watch these lines!
Big rants today, sorry all! Got to be done sometimes. It's more brain spew for me, because I will guarantee you, I use this blog more than all of my readers combined...easily. It is my weekly historical reference for the markets. It is a huge help. Thank you all for indulging me. I hope you can gain something from my efforts.
Lets look at some of our big trends this year...Stripped down, pure price.
Home Depot (HD) daily chart 1-year
Welcome back to the Portfolio HD! We entered a new position this week in Home Depot after it was able to make a higher high, breaking out of the 3-month trading range its been in. After a torrid start to the year, HD has taken a nice break without doing ANY technical damage to its long term up move. I believe the trend is setting up to continue and a break below $72 will prove me wrong.
Cummins (CMI)
Cummins has seen fits and starts this year. It started the rally nicely with an almost 30% gain, then it consolidated from Feb-Aug. It has since been continuing higher from the June lows, and despite a little hiccup in October, the uptrend is intact. Our stop is still at the $122 support and now key swing low.
Ford (F)
We have had a great run in Ford this year as it is up 70% from the November lows. We have seen some tough sledding for the past 5 months and I expect it to continue to be range bound between $19 and $16ish for the intermediate term. A breakout above $19 would be fantastic, a breakdown of $15 would be highly damaging. Right now we are stuck in the middle with a Half sized position...okay place to be as long as the longer term trend holds up.
Wells Fargo (WFC)
Wells and all the banks had a stellar first half of the year last year. But since the summer peak, prices have meandered toward the bottom right hand corner of the chart. Nothing major or even negative really, just a rest. It appears that the rest
could be nearing an end soon. If WFC could break above the ~$44 level, it would set into motion a nice looking reversal setup here between $40 and $44. The key point for Wells right here is the swing low in early October at about $40. We will look to reenter a position on a breakout above $44 with confirming signals.
Clean Energy (PBW)
What a winner Clean Energy has been this year. This is one of my favorite picks. Up just under 100% since the November low, PBW has been able to continuously make new highs and show positive price action. It looks as though a short term swing point will occur soon as price has been tightening in a triangle/pennant formation since mid-October. A break of $6.25 to the downside will cause shares to come under pressure likely down to the $5.50-$5.75 level. While a break above the $6.90ish area will continue to rally to new multi-year highs. I know that sounds obvious, but most of this price following is that simple. If it goes up, it goes up and if it goes down, it goes down. Its just our job to best align ourselves with that process.
3D Systems (DDD)
If Clean Energy was one of our favorite picks this year, DDD has to be THE pick of the year! This thing has been an absolute monster for my accounts over the past 8 months and up over 200% since the November lows. I was buying the trend shift in mid-April and have stuck with it all the way up. We made our entry for the Portfolio in July @ $51 per share and as of last week we sold half of that position. Price has since continued to rip, up another $10 this week! While it would have been nice to really get all of that gain, I am perfectly fine riding a 50% position at these levels. If it keeps going up, at least we are along for the ride, when it pulls back reasonably and sets up again, we will align with that new setup. For now we are taking what its giving us and that is still very solid returns at half our initial risk.
Enbridge (ENB)
Since running strongly into year end and early spring, Enbridge has been beaten up a bit on this shorter term timeframe. If you take a look at the uptrend in place from the '09 lows nothing really has changed here. Price is just now bouncing off the range and channel lows and seems ready to continue the strong push higher. We saw a nice breakout 2 weeks ago as price rallied through the downtrend resistance and took out the $43 level that I have been watching closely. This week we saw a smooth pullback to retest that breakout and have entered our first position for the Portfolio this year in ENB. We will use the prior 3 lows from around the $40 level as our invalidation point on this entry. I love to buy this stock as it comes into trend support. It has been a winner for me for the past couple years. Keep riding these big trends.
PPG (PPG)
PPG is a beast. This thing just goes higher. When it dips, it dips smoothly and orderly. It then sets up nicely each time and breaks out in a text book manner. This is a great place to manage some of your funds. Big winners that act like this are hard to come by. Stick with it above $160
Hain Celestial (HAIN)
Ah HAIN. One of my other favs. I have been all over this stock for a couple years now and it is just a nice stock to trade. What we have seen this year has been stellar. The stock is up a cool 60% from the January lows and looks like its wants to continue to push higher. They continue to roll out quarter after quarter of record profits and sales...yes this is the one company where I actually listen to the conference calls. When a company (who's products I use a ton of) continues to act this well, has a very sharp CEO and a stock price like this...What's not to like?
The other funny thing about this chart is that the prior pop and drop are not even shown here in the 1-year view. This thing everyone thought was topped out mid last year and yet it just bases, breaks out and follows through time after time. Love it! Big support at $72
Apple (AAPL)
After that fantastic decline, we have seen AAPL put in a very nice looking Rounding Bottom. As you well know, we have been positioned aggressively bullish in this stock since the $460 breakout, from the 1st week in August. This chart looks very constructive to me and the momentum is starting to build up. If they follow through with Carl Icahn's share repurchase suggestion, I think this easily moves back to the prior highs. If we can see a sustained breakout above the $540 area we would move up our trailing stop to just below this weeks low at about $510. But we still need to see more for that to happen anytime soon. Currently we will be invalidated right near our $460 entry position. We basically have a zero risk position in AAPL here...That's a nice feeling! Especially with such a bullish setup in the price action.
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The only thing else I really wanted to touch on this week was that we are moments away from getting a new buy signal in the Financials (XLF). Currently the XLF and XLU are our only S&P sector groups where we have no active position. Both are very close to buy signals and I'm not sure I have ever had buys on EVERY sector group simultaneously, that would be interesting in deed. None the less, the XLF has setup for a nice breakout should we see a little more confirmation in the near future.
Financials (XLF)
While we have seen price take out the prior highs this week, I didn't get any confirmation from the secondary indicators. Trading volume was weaker this week than it was last week and we always like to see volume pick up on a breakout signal, not decrease. And secondly, the Relative Strength trend has not been able to confirm the breakout. This could be signaling a false move under the surface as traders are not fully committed to this move just yet. I hope to see some confirming signals soon and will be able to act on these new price highs. So this is something to keep on the close watch list going forward. Remember that the market likes to follow the Financials in whatever direction they take.
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