Weekend Review and Watchlist

As many of you know, I've been winding down this service on Marketfy for some time now and things are now at an end. This week will be the last time I post updates here. I have needed to concentrate my efforts elsewhere, on my money management business, and most recently a service similar to this one, providing commentary and portfolio analysis for institutional clients.

Eventually I may re-establish this service on my old blog. Until then I will likely post on social media many of the charts, ideas, and watchlist names that would otherwise have been part of these weekend reviews.

I very much appreciate the messages I've received and have been thrilled to hear that whether it's through the portfolio management, market commentary, trade ideas, or education on the subjects of position sizing and risk management, I've in some way helped you become a better trader and investor. That's what it's all about for me.

Here's this week's review:-

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Overview

In the past few months as the market edged to new highs, it had done so with some underlying rotation, with transports or small caps lagging, or the equalweight versions of indices not making highs, or ‘operating companies only’ showing breadth not quite as strong as some thought. There was always something for the perma bears to point to as a sign of weakness. That all changed this week.

All the major indices closed at all time highs on a weekly basis.

All the major indices but the Dow closed at all time highs on a daily basis.

Breadth is at all time highs, and bullish sentiment is elevated but far from extreme levels.

It doesn’t get much better than this.

So what’s the bad news?

It doesn’t get much better than this.

This market has so far this year been kind to momentum traders like myself. It’s still had its share of losing trades and setbacks, but they’ve been quickly recovered or new opportunities have readily emerged in their place. That doesn’t mean it’s been easy though. The hardest part is continuing to execute that strategy in the face of when most would have you believe a pullback or correction is always imminent.

On social media with this being not only month end but also quarter end, there are a slew of statistics on this week’s activity, but perhaps the most notable are not concerning new highs, trend, or breadth, but rather volatility. It’s not that the market is at all time highs, it’s how it got here, with little to no volatility.

The VIX posted its lowest monthly close in history, and it was the least volatile September in history. The average daily range for the SPX in September was 0.40%, the smallest going back to 1970. (Sources: Charlie Bilello / Ryan Detrick)

In such conditions, and especially as we enter Q4 and approach year-end, we have to remember not to trade our p&l, or let emotions influence our decision-making. Resist the temptation to lock-in a good year, forgoing what else it may have to offer, or to chase, taking on more risk in an effort to make up lost ground in the time remaining. Forget the scoreboard. Stick to the process. Do your job.

At some point volatility will return. We know that. And given the conditions we’ve become accustomed to, it’s likely that just a 5% pullback (which is yet to occur since the Feb ’16 low) will feel like 20% when it eventually happens. But we don’t need to predict or position for when it will happen. We just need to continue executing a process that allows us to safely navigate whatever conditions we’re presented with.

Let’s take a look at how things stand:-

The S&P closed at all time highs. It also closed out its eighth consecutive quarter higher.

On a total return basis it closed higher for the eleventh month in a row, the longest streak since 1958/59. One more up month will tie the record of twelve from 1936 and 1950. (Charlie Bilello, Pension Partners)

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The Dow Industrials, NASDAQ, NYSE Composite, Dow Transports, Russell 2000, Midcap, and Microcap indices all closed at all time highs on a weekly basis.

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One of the biggest drivers of this week’s move to new highs and further improvement in breadth was the strength in small caps, shown here via the Russell relative to the S&P. Small caps outperformed significantly in the immediate aftermath of the election before stalling for much of this year, and are now once again leading what appears to be a new leg higher in the ongoing bull market.

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Another interesting chart comes via Dana Lyons, showing the Value Line Geometric Composite which tracks the ‘median stock’ in a universe of 1700 stocks. As Dana notes, ‘it means that not only are the top-heavy cap-weighted stock indices at new highs, but the median stock in the market is also into new high territory.’ This is a barometer of overall market health, and it’s breaking out to multi-decade highs.

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Breadth, shown here via the NYSE Cumulative Advance/Decline is at all time highs.

That includes many issues that aren’t company stocks, but it’s pretty much the same chart if you look at the same measure for just the S&P 500. Bottom line, breadth is strong.

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Sector Analysis

At the top this week are Financials, Industrials, and Technology, which all finished at all time highs.

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They’re closely followed by Materials, which recovered a weak start to finish just below its highs.

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Then comes Healthcare, Consumer Discretionary, and Energy (below) which despite still being beneath its 200-day, has now rallied over 10% from its lows in August.

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Near the bottom is Real Estate, and Utilities, which are both below their 20 and 50-day MAs, and last of all is Staples, which started the week brightly, testing the underside of its 200-day, but later weakened.

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Away from the ten S&P Sector SPDRs, Semiconductors (SMH) recovered strongly from a poor start to the week, surging to new highs.

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Gold Miners (GDX) whose breakout had even caught the attention of a bond king, has since erased its gains and retraced its steps back to its 200-day MA.

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Biotech is once again strong with XBI moving to all time highs following a tight 2-3 week consolidation.

IBB isn’t there yet, but also sports a tight consolidation off the highs and looks ready to resume higher.

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Alpha Capture Portfolio

As the service on Marketfy comes to an end I've closed all the positions on the platform. Prior to those trades it held 9 positions, with total open risk of 6.2% and 15% cash. It was modestly higher this week vs +0.7% for the S&P, and was +5.0% YTD.

FWIW, the strategy I run for clients has had a similar profile as the market moves to new highs, with 10 positions, open risk of 6.9%, and 3% cash. It's performance has been much better though, currently +12.1% YTD net of fees.

In the coming weeks I'll continue to update as appropriate on social media any signals that would have occurred.

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Watchlist

A broad mix this week led by Financials, Industrials, Technology, and Consumer-related sectors.

Here's the full list of 25 names:-

$JPM

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$BAC

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$C

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$CMA

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$GD

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$HON

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$LGND

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$CORT

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$INTC

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$AMAT

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$CY

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$UCTT


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$SHOP

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$ALGN


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$BERY

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$SKYW

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$RUSHA

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$KMX

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$BCOR

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$YNDX

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$YY

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$WYNN

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$GTN

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$GNUS

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$FIVE

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Posted to Alpha Capture on Sep 30, 2017 — 2:09 PM

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