Equity – Page 7

Important Cycle Marking Major Market Top?

October 14, 2014April 13, 2022

One of the many tools at our disposal at 360 Investment Research is the use of cycles. What are cycles? Cycles are recurring events that happen at such a frequency as to be reliable in identifying the same event in the future. Think of the seasons of the year: Spring, Summer, Fall, Winter. These are cycles. They happen over and over again with reliability. We know with certainty approximately when these events will take place. Believe it or not, and I don’t have an explanation for it (other than ebb and flow of liquidity)… but markets also have cycles. One such cycle, the 360 trading day cycle, was introduced to me by Raj Ian Thijm on his site, http://timeandcycles.blogspot.com/. This cycle marks, with approximate reliability, turns in the S&P 500 every 360 trading days (which is also the equivalent of 525 calendar days or 75 weeks). See the chart below (you can click it to embiggen). The gray lines mark a distance of 360 trading days. Note how consistently this cycle marks significant turns in the market. What I also found interesting about this cycle is the possible significance of a cycle within a cycle. Look at the chart. See the green lines? This is the 360 trading day cycle on its 5th instance. Five 360 trading day cycles equal 1,800 trading days. Nice round number. But, that’s not the point. The point is that this 1,800 trading day cycle (a parent of the 360 trading day cycle) marked the relative tops of the S&P 500 back in 2000 and 2007. This same cycle has come due recently. Will it mark the top of the S&P 500 again? I don’t know, but I will be watching this carefully. The significance of the 360 trading day cycle is evident. Stay curious, investor.

360 trading days mark important turns in the market. Could 1,800 trading days be marking this as a top?

Equity

Lunch with Russell

October 10, 2014April 13, 2022

The Russell 2000 is an index containing – you guessed it – 2000 Small Cap stocks. It’s also an index that is breaking down sharply through resistance this week. The significance of this move is a higher probability of lower prices in the immediate future (over the next few weeks). Another impact is that most US markets are correlated to the Russell 2K. Capital preservation is a smart move. Cash is a position too.

The chart below may look complicated, but it’s actually very simple if we break it down. The index formed a double top with a negative momentum divergence (black lines). Support has now been broken (shaded area around 1100). The move from the highs through the shaded resistance marks equilibrium and our measured move to the downside (orange dashed lines). The measured move lines up great with a drawn parallel trend line (green dashed line) only touched back in October 2011. The aforementioned has also lined up well with a 50% Fibonacci retracement and the 200 week moving average. This confluence of resistance is a magnet and our downside target (a drop of 11%). The only other viable target I see is at the 38.2% retracement in confluence with the already established solid green trend line (drop of 6%). We’ll continue to evaluate this decline as it moves along.

How do we take advantage? Through an inverse ETF that goes up in value when the Russell 2K drops in value. A few choices:

RWM (1x leverage): in general, every point move in RUT is a one point move in the opposite direction for this ETF
TWM (2x leverage): in general, every point move in RUT is a two point move in the opposite direction for this ETF
SRTY (3x leverage): in general, every point move in RUT is a three point move in the opposite direction for this ETF

All of the above carry risk to varying degrees. Our risk is defined: If RUT recaptures 1100, we’re out. Classic risk management. We have our stop. We have our target. Trade safe, curious investor.

Equity

Watch the S&P 500 closely

October 8, 2014April 13, 2022

With Small Caps and Mid Caps looking increasingly weak, not to mention stock markets across the globe (FTSE, DAX, CAC), we’re keeping a close eye on the S&P 500’s price action. If this major US index does not hold/bounce from this level, the next area of support would be around 1900, a confluence of previous resistance (now turned support) and a parallel trend line running from the November 2012 low. Monitor this situation closely, curious investor. Price tells us everything.

S&P must hold or bounce from here. Otherwise, lower prices are immediate.

Breakout

Nike Revisited: Did you JUST DO IT?

September 28, 2014April 13, 2022

That was quick. Last week, our technical analysis pointed to a good probability of higher prices in NKE after identifying an ascending triangle on a weekly time frame. Maybe you got stopped out at 79.50. Or, maybe you enjoyed the 10% gain! One of the first questions I got from individuals who saw this analysis and subsequent gain was… Why? What happened? My answer: does it matter? Does the 10% gain not count if we don’t know exactly why. You see, every ounce of our body is programmed to ask this question. It could be curiosity. It could be our rebellious nature. We want to know why. In investing, this desire to know why is looming in the deep recesses of our analytical minds. But guess what? We cannot know everything. Do you want to know why NKE went to $89? Because that is what it’s worth. Price is the final arbiter of value. Why is NKE worth $89? Because enough money believes such that it created demand that outstripped supply to the tune of $89/share. That’s really what happened. Sure, fundamentalists will point to earnings. Ok, that’s fine. But how many times have you seen great earnings and see the price drop? That’s right. It happens a lot. Could it be that price forecast the earnings would be that good? Absolutely. We can think what we think, but we must trade what we see. What did we see? That the likelihood of higher prices in NKE were pretty good. Now what? Move your stops up to $84.50 (which is equal to 50% of this original move).

If you benefited from this information, you’re welcome. Share the wealth. Share 360 Investment Research with your friends. Trade safe, curious investor.

Breakout

JUST DO IT

September 21, 2014April 13, 2022

Nike has broken through overhead resistance to new highs on weekly and daily time frames. The move comes after the fourth knock on the 79-80 door. Corrections take place in one of two ways – through price (declines) or through time (sideways price consolidation). This bullish continuation pattern in NKE is a classic ascending triangle, meaning that price formed this pattern during a period of consolidation within an uptrend. In an ascending triangle, one trendline is drawn horizontally at a level that has historically prevented the price from heading higher (for NKE, 79-80), while the second trendline connects a series of increasing troughs (marked with a “360 green” line). What’s great about patterns is that our risk and rewards are well defined. In this case, our reward target is 96ish, a 17% gain. And we can choose one of two stop loss levels to manage risk – either 79.50 (below previous weekly resistance now turned support) or tighter at 80.75 (the ideal support level on a daily basis)

We have our entry (right now), our stop loss, and our target. We don’t enter a trade without an exit plan. So we have our game plan and will enter this trade because of the robust risk/reward opportunity. If we get stopped out, we don’t care. That means our risk management is solid. We’ve removed the emotion while identifying great potential gains. You’re welcome.

Equity

Keep Calm and Carry On?

July 9, 2014April 13, 2022

Of late, the FTSE (London Times Stock Exchange) has been struggling to make new highs. When looking to the left on the daily chart, we see that lower highs and lower lows (even though minimal) are beginning to accumulate. In addition, this level appears to bring out plenty of supply (sellers). The overall trend is up, but tightening within an ascending triangle. This price action makes us sit up and take notice. A substantial move could be in the works within the next three months. The FTSE has struggled since early 2013 to clear the 2008 highs. We’d like to see this index break upward (or at minimum, hold this level) to confirm all other current global equity bull markets. If FTSE breaks down, it will cause us to watch all other global equity markets (most notably, the US) with more scrutiny. Keep calm, curious investor.

Equity

AAPL of your eye?

June 26, 2014April 13, 2022

Recently, a few friends have asked about buying Apple stock. The reasoning, as far as I can gather, is because the stock is now “cheap.” While it is good to buy things at cheap prices, I would argue that Apple is not “cheap”, but perceived by the retail investor as “cheap” because of the recent 7-for-1 stock split, which brought the share price from above $600 to below $100. A deal, right? I can now get Apple stock for less than $100! Awesome! Freeze! – not so fast. What is really happening here? Let me try an analogy:

One Benjamin for Five Jacksons
As nice as it is to have a $100 bill in your wallet, it’s difficult to use on a daily basis because many stores will not accept them. Therefore, it’s usually best to take that $100 to a bank and exchange it for five $20 bills.
A stock split is a corporate action that increases the number of shares by dividing each share, which in turn diminishes its price. The stock’s market capitalization (the overall value of the equity) remains the same much like the value of the $100 bill is not altered by swapping it for five $20 bills. Five $20 bills still equals $100.

So… Apple has not become “cheap” and is the same in value, but in a different denomination. Why would Apple do this? THIS is the question you, the curious investor, should ask. And the answer should make you think twice about buying Apple right now. So why did Apple do this? Simple. To make the stock appear “cheap” so that more investment dollars will flow in from retail investors like you and me. On it’s face, this not a unique practice and is done by many companies each year. However, be aware that this practice does not make a stock “cheap”, rather affordable. And when you consider that Apple is also well on its way to completing a massive stock buyback program ($130 Billion worth!), it is apparent that Apple is working hard to keep the value of its stock near all-time highs. This buyback program directly affects the price of the stock as they remove shares from the market. This, along with the current price picture for Apple, tells me that the risk is way too high to own Apple stock right here, right now. Take a look at the monthly chart below (which accounts for the split). We are bumping up against resistance from the all-time highs back in November 2012 with a major divergence in momentum. It took a huge buyback program, and now a stock split, to get it here. You can buy Apple stock right here… but you’ll probably be able to get it truly cheaper in the not too distant future.

Cheap? I don't think so. — Cheap? I don’t think so.

Equity

BMO Revisited

June 24, 2014April 13, 2022

The measured move was miscalculated in my 06/06/14 post (see pink arrows in the chart below – this is the measured move, which = $72.50, not $73.50). Accordingly, I am marking this as a target hit, but with a lower case “booyah.” What now? If long, move your stop-loss up -or- sell and enjoy your profit. Now we wait for price to give us a clue as to its next move.

Breakdown

Shorting Russia

June 23, 2014April 13, 2022

When the Ukrainian/Crimean crisis first evolved, Russian equities sold off hard. We like to use ETFs to capture full sectors, markets, or countries. The ETF for Russia is RSX. Since the March panic sell off, RSX has rebounded to a trendline that has provided resistance for the past 7 years. This meeting with the upper trendline coincides with a Fibonacciretracement level of 61.8%. This, along with confirmation of several momentum indicators, make shorting RSX a low risk / high reward trade. Stop-loss = check. Targets = check. Our risk/reward profile is well defined. We like that. A break above the upper trendline would be bullish for Russia (RSX) and would change our stance. We’re not concerned with being right. We’re concerned about being on the right side of the trade.

Equity

BMO at decision point

June 12, 2014April 13, 2022

One of the stocks I follow is BMO. Shocking, I know. We’ve been tracking the price moves of BMO well. And now it is decision time. Price is consolidating into a pattern that will either lead to more new highs at 73.50 -or- correct to 66.50 (which could morph into a zigzag correction to 65.25). Either can happen, but I put the correction to 66.50 or 65.25 as more likely based on other indicators I follow -and- the momentum divergences on the weekly and monthly time frame. We should be able to determine direction by the end of this week. Price knows more than we do. Click the image below to embiggen

Category: Equity