Stocks staged quite a powerful session on Friday with all of the major market indexes going out at the HOD across the board. While volume was slightly lower than the prior session it was only lower by about 5% on both exchanges. Considering it is a three day weekend that is decent volume on a strong session. While it was not a slam dunk bullish session they do not get much better than that when it comes to intraday price action with a HOD close. All in all, it was a very impressive week for the overall stock market especially considering the hawkish Fed and overall pessimistic mood in the market.
The Fed has been making it more and more clear that they intend to hike rates 1 or 2 more times before the end of the year and while traders foresee this leading to a bear market it should be noted that markets do not start to really sell off historically until a series of 2 to 3 success rate hikes in a row. The slow and steady manner in which the Fed is currently hiking rates seems to be giving the market plenty of time to digest this situation and the small rate hikes have been beneficial to the bank stocks based on their current daily and weekly charts.
While the charts continue to shape up industry by industry following the most recent earnings season, individual stock traders are instead focusing on the rate hikes and other bearish news as this currently little rally off the May lows is beyond unloved right now. This initially became noticeable to me last week when the bulls hit 19% in the AAII survey and the put/call ratio hit 1.20 on Thursday. Then this week despite the gains earlier in the week, bulls dropped to 17.75% and even more surprising those in the neutral camp exploded to 53% in the AAII survey. Just the day before the Investors Intelligence survey came out with bulls dropping for the fourth week in a row to 35.4% and bears rising on the week to 24%.
While all of this bearish posturing has been happening, stocks in a wide range of various industry groups having been forming constructive price patterns. Rather it be the Semiconductors that are hitting new highs, the Technology stocks nearing new highs, or the Bank stocks rounding out off their most recent lows, there are a lot of bullish constructive price patterns out there. When there are this many industry groups rounding out in price patterns, it doesn’t make sense to be too bearish here. If the price patterns were confirming the sentiment that would be one thing but based on the way price charts look right now traders are going to be caught flat footed if the market decides to rally to new highs.
What if I am wrong? Big deal. That happens all the time and happens a lot more often since 2008. If longs are wrong here, the wise ones will simply cut their losses and move to the sidelines. What if I am right? I will be fine. If all of my long orders execute on Tuesday morning I will be 75% long a lot of leading stocks with very bullish technical patterns and will profit mightily if the trend continues. Based on the current price patterns in the overall market and the current market sentiment, I like my odds right now. If the data changes, my positioning will change as my sell stops are hit. Until then, I have learned it is not wise to fight an uptrend with growing bearish sentiment in the face of rising equity prices.
I have a handful of new long positions for Tuesday and every single one is CANSLIM/high quality. Now I don’t want to expect too much out of this market but we sure are setting up for a nice potential move higher. I don’t care if it is inflation related or real economic growth related. I only care that prices are moving up and setting up for larger potential moves. As long as I keep seeing Semiconductor stocks breaking out to new highs and Bank stocks rounding out off their lows in big bullish cup like patterns, I am going to stick with my long bias as all of my operational models are under across the board operational BUY signals confirming this recent price action. I’ll change my status when the stock market decides to change its status. Until then, the trend is your friend until it bends.
I’ll see you in the chat room on Tuesday. Aloha from a very warm and sunny Maui.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – SIGNAL DATE
CLR long – +123% – 2/11/16
GRAM long – +57% – 4/1/16
SIMO long – +30% – 3/11/16
FPRX long – +28% – 3/18/16
APLP long – +27% – 3/31/16
