Mr. Market’s Orbital Flight Path, Winners & Losers 10/28/17 incl $FXE $EURUSD $USDX $SPPI $AMAT $ON $FCAU $CHGG $CDNS $ALGN $CC $IAC $OLED
This is a market which refuses to cool its ardor for higher prices. It rockets higher. That said, I have observed the common complaints of the ascending heights Mr. Market has scaled: that it’s based on narrowing leadership and it just so happens at the same time there is a dark turn in social animus regarding that market leadership — made up of a handful of disruption platforms at the top of the current “stack” — a/k/a “FANG” or “FAAMG”.
Some assert that these masters of the “application layer”, which we are all beholden to 24/7, are due for a reckoning. Despite this change in social mood, the pop up in half of the “FAAMG” this week betrays our dependence on these platforms. And in the animal spirits menagerie both nova-hot crypto-currencies and raw materials are growing wilder — therefore both electrons and atoms getting their fair share of Mr. Market’s love. He has shrugged aside the bane of traders & crypto “HODLrs” alike - “F.U.D.”. Gorged on animal spirits, he has set aside fear, uncertainty and doubt for another day.
The combined market cap of $AAPL, $GOOGL, $MSFT, and $AMZN…March 9, 2009: $327 billion
Today: $2.734 trillion pic.twitter.com/D0l7w3Euqp
— Charlie Bilello (@charliebilello) October 27, 2017
Relative strength for the Materials sector versus the S&P 500 has gone through the roof lately. (Dots represent Fed Days.) $XLB pic.twitter.com/5cAErVD5GR
— Bespoke (@bespokeinvest) October 26, 2017
When Does a Bubble Become a Bubble? NEW POST. $BTC.X https://t.co/BlFmI4SP5S pic.twitter.com/O6m3ZZhroO
— Charlie Bilello (@charliebilello) October 22, 2017
We’re either at the beginning of the end of a long ride up since the 2008/9 bottom or we’re at the end of the beginning of a new bull market. It’s been a great ride in either case. I lean towards the beginning of the end of one long ride — It’s melt up time.
I believe no matter how it plays out a whole new cohort of investors, traders, risk-takers and market players are about to be reintroduced to all kinds of long-forgotten, and now alien, market paradigms.
My “melt-up” - whether it’s the beginning of the end of one long ride since 2008/9 or the end of beginning of a new bull — may include the following:
-monetary velocity as a real thing to measure again
-wage pressure and the willingness of capital to bid for workers with training (to help sop up the last of the workforce holdouts as well as holdovers from disrupted industries)
-the notion that credit investments will again become “instruments of confiscation”
-and surprise, surprise, the return of volatility.
I plead guilty for making some bold market assertions, and lots of future-gazing shared without the balm of fancy charts and alternative data analysis power-points.
But isn’t the notion of the market’s status quo remaining in stasis for yet another decade as equally bold as my melt-up hallucination? Who seriously thinks Mr. Market has gone straight through a macroeconomic event horizon, wherein:
-monetary velocity remains quiescent
-the aggregate standard of living (as reflected by the buying powers of wages) goes negative and we drift back towards living standards last seen during the 1970s, the 1930s, the Black Plague, whatever. Come on. After all, you are reading this update, assuming you haven’t already deleted this content and me from your browser, on a supercomputer the size of a fiat wallet, which may have been purchased for next to nothing. You really don’t think “the best is yet to come?” is in fact our actual and horrible destiny? We simply can’t help advancing, even if clumsily, forward and upward.
-credit remains the only bullish bet for eternity
-volatility stays flat forever and premium collectors never “meet cute” with a steamroller
What has been out of favor, near-forgotten and left for dead becomes increasingly prevalent, popular and rediscovered. My label for this is “pariahs into paragons” and vice-versa. What has been left for dead until recently was the FOMO feeling of “everybody back in the pool”. It looks like a whole new generation of market plungers (see what I did there? pool? plunger?) are about to begin chasing after their version of market nirvana.
Peter L. Brandt mused: “Most bears expect sharp mkt decline to destroy short vol traders. What if short vol destruction comes from wild blow-off advance?” a/k/a what if it’s a “melt-up” runup in the market’s final phase that brings along volatility instead of a crash? That would be interesting. Maybe one last blaze of glory market boom will happen. That could be the coda to Mr. Market’s forced long march from the trauma of the 2008/9 crisis and subsequent aftershocks. This is the environment where all kinds of crazy happens and mania is mistaken for market genius.
Most bears expect sharp mkt decline to destroy short vol traders. What if short vol destruction comes from wild blow-off advance? $ES_F pic.twitter.com/AxdA7X9QE4
— Peter Brandt (@PeterLBrandt) October 27, 2017
Enough of the big-picture market navel gazing. Let’s jump into the numbers of Rooster360’s Master Ideas Universe and actionable ideas.
Switching up the roll-call of my reports this week, I begin with the Top 20 lineup - just updated with new suggested stop loss prices.
I use very broad and slow trailing stop losses, based upon an average of the most recent 4 to 6 weeks lowest weekly prices — and update for the lowest weekly low price. Why such “wide” some traders might ask? The core philosophy and perspective of the material shared on this site is slow-frequency, weekly price based trend-following.
Similar trading methods to Rooster360’s house-style are not unlike using those thumbs & palms winter mittens we had as kids — they are roomy & easy— and while they might be feel a little too sloppy for say the speculative equivalent of watch making (i.e. day-trading), they’re good enough when the smallest time and price unit is based on the weekly “OHLC” (i.e. “Open, High, Low & Close”).
Here’s a quick version of this week’s Top 20 leaderboard — a list updated each week and made up of the best 20 ideas from the Master Ideas Universe. The list is slow to change, due to the focus on longer time frames, but when it does it is something to take note of.
The Top 10 of the Top 20 leaderboard is almost unchanged.
$TTWO $SGMS $SQ $CTRL $ANET $TROX $KEM $EXAS $WTW $NVDA
The second cohort in the Top 20, “numbers 11” to “numbers 20”, however includes:
$SPPI $AMAT $ON $FCAU $CHGG $CDNS $ALGN $CC $IAC $OLED
Let’s look at the charts for “Top 20” charts #11 through #20 as of this week. Most of the Top 10 leader-board is the same and so I instead wanted to look at the charts in the second “tier” of the Top 20. Not all ideas are alike and many will be removed when a trend fails or ends on its own terms but the Top 20 report is a reminder that traders are better off focusing on strong ideas. Strength begets strength for the trend trader and the following provides some healthy examples.
The following list is my “favorite” weekly report, the Rooster360 Stopped Ideas Report. This offers far more compelling hints than entry “signals” about what potential trends have either ended or failed. Many of these ideas are “bottoming” if they are declining or “topping” if they were rising. Here is where the long slow “turn”, or at least a “pause”, is taking place. If you see many ideas from the same sector, industry or asset class doing this about the same time then you have a hint that entire group is changing in trend.
One of my recurring themes when I observe stopped reports is “pariahs into paragons”. This is where a sector/industry/asset that has been in decline or out of favor may have finally entered a period of exhaustion. This becomes a place that other styles of investment, most especially value, distressed and private equity investing, gets working and bargain hunting becomes the feed-stock for a potential up-trend in the future.
Buyers who are bargain hunters and deal-makers may take the reins from sellers. Aside from these deep-pocketed and resilient buyers the market cliche of “falling knives” is a real concern for trend followers and would be swing-traders who risk being caught wrong-footed. The flip-side to my first theme is “paragons into pariahs”, where very popular sectors, ideas and assets are in strong demand and prices never seem to find a “top”. This becomes a great place to know where to exit an up-trend. The suggested stop loss prices shared on all these weekly updates were generated mechanically and they are a reasonable starting point to help readers at least think about how to exit and how to size their trades.
I will note one observation from this week’s update of the Stopped Ideas report. I find it very compelling to see the equity proxy for the EURO, $FXE, being stopped out as a long idea. I have seen charts from well-known traders, including J.C. Parets and Peter L. Brandt, who have been musing whether or not the US Dollar is about to experience an upturn after a long period of decline and side-ways price action. This is very interesting to me for Q4 2017 forward.
do you guys think this is the type of head & shoulders top that works or the type that doesn’t work? $EURUSD $DXY $UUP pic.twitter.com/kMCl5vElzm
— J.C. Parets (@allstarcharts) October 26, 2017
#Classical_Charting_101 U.S. Dollar Index completes H&S bottom $DX_F $UUP pic.twitter.com/fgyL3vYRtu
— Peter Brandt (@PeterLBrandt) October 26, 2017
Lastly, the following reports are from the new Rooster360 “Laggards” report. This is a lineup of all the ideas from the Master Ideas Universe, from the earliest active idea up to Q2 2017, that have not produced a simple positive return, as estimated from the difference between the weekly closing price when the idea was added to the list to the weekly closing price of the most recent week. This can provide both a shopping list and “caution” list for readers to review. It has been supplied in both chronological and alphabetical order for readers.
R360 laggard 102817
R360 laggard alpha 102817
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Originally published at www.rooster360.com on October 28, 2017.
