Trend Analysis – Adaptiv

Category: Trend Analysis

This Is How To Navigate Amazon

September 28, 2017April 13, 2022

Much like its namesake, Amazon stock (ticker: AMZN) is difficult, yet rewarding, to navigate. Over the past two decades, this well-known retail (not technology) company has risen over 48,455%. That’s not a typo. $1,000 invested in AMZN back in 1997 would be worth $484,558 today. That same $1000 invested in the S&P 500 would be worth $1,999 today. Making money in the stock market is easy, right? Wrong. As much as we’d like to think we’re rational individuals, we’re our own worst enemy. When involved with markets, we tend to respond to gains and losses emotionally. Loss aversion is a real and present danger to many portfolios. Read more “This Is How To Navigate Amazon” →

Breakout

Get Intel Inside Your Portfolio

September 20, 2017April 13, 2022

Get Intel in your portfolio. Sometimes market participants forget we’re in the market to make money. Contrary to the cacophonous media echo chambers, we’re not in the market to be right or wrong. Media may love opinions, but markets couldn’t care less about what we think. Markets are not our friends. They don’t care if we’re right or wrong, so we better be in the business of getting on the right side of the trade, managing risk, and capturing reward. With this in mind, it makes sense to own things moving up in both absolute and relative terms. Read more “Get Intel Inside Your Portfolio” →

Equity

Simple Market Secret: Just Look Left

September 18, 2017April 13, 2022

Breakout

This Is How South Korea Could Lead Emerging Markets…

May 15, 2017April 13, 2022

Before we get too far into today’s research, I want to acknowledge all those amazing Moms out there. We celebrated Mother’s Day yesterday here in the United States. It’s a special day where we recognize those special Moms who have impacted us and those around us. For me personally, I’ve been blessed to be around some amazing Moms, including my wife, my mom, my mother-in-law, my sister and sister-in-laws, and each of my grandmothers. These are some of the strongest and most compassionate people I know. For many, this is a time to reflect on Moms from today and yesterday. Some are no longer with us, but their impact is still felt. What would our world look like without Moms? I have no idea, but we’d all agree it wouldn’t be good. Who would care and nurture like they do? Who would unconditionally love the next generation? Who would bring empathy and thoughtfulness into our everyday lives? Moms are so important to our families and society. If you’re one of them, thank you! Here’s to the Moms. We appreciate everything you do.

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With that important acknowledgment concluded, let’s dig into today’s findings: South Korea. And right away, I know what you’re thinking. How could South Korean stocks possibly be a good place to invest? They’ve had major corporate and political corruption scandals, including the impeachment of ex-President Park Geun-hye this past March. On their northern border sits a nuclear saber rattling regime lead by enigmatic “supreme leader” Kim Jong-un. And South Korean stocks have gone nowhere for eight years. So how can anyone consider a position in South Korean equities? Well, as you know we’re fond of pointing out: price leads news, not the other way around. Case in point, remember our research in March 2016 regarding Brazil? No one wanted to touch Brazilian stocks and the negative financial “news” surrounding them was palpable. Since that article, Brazilian equities have rallied 65%. Price first. News second. Just recently, YahooFinance reported, “Brazil’s Economic Activity Hits Fastest Pace in 8 Years.” We need to keep in mind that financial news reports on the past. Price is from today. And markets are future discounting mechanisms. Brazilian markets saw the economic improvement before the financial media. Accordingly, we should use price, not news, to participate in markets. Even though the news surrounding South Korean equities is negative, we don’t need to listen. It’s noise. Price is all that matters.

Let’s take a look at what’s really happening in South Korean equities. Below, is a weekly chart of the South Korean Composite Index ($KOSPI) dating back to 1999. Quickly, we can see South Korean stocks have gone nowhere since the selloff in 2007. That’s 10 years of zero to negative returns!

More recently, since 2011, the $KOSPI has been in a narrow range between approximately 1700 and 2200. This battle between buyers and sellers has created a base six years long. If you’ve followed our work long enough, you know we’re fans of long bases as they can lead to high spaces. Here’s our Tweet from March as we’ve been watching this base for a long time.

No doubt about it, six years is a long base. This battle of supply and demand was worth keeping an eye on. Here’s a closer look. For six years, we had no business owning South Korean stocks as a group. But that’s changed as we can clearly see the recent breakout to new 10-year highs.

Does this long base and subsequent breakout guarantee higher prices? Absolutely not. Yet, we know if there’s enough demand to push prices past areas where sellers have shown up before, it likely means a change in the demand/supply dynamic. Buyers have control. And the advantage of identifying important levels of supply and demand is we can use those levels to manage risk. You can’t invest in the $KOSPI directly, but it’s 2017 and ETFs allow us access to markets our parents only dreamed of. By the way, if you haven’t done so already, we’ve created a free resource for you – the Ultimate ETF Cheat Sheet. You can click here to get it => Ultimate ETF Cheat Sheet. It’s a great reference tool for ETFs of all types, including an ETF for South Korea: EWY. Let’s use it to participate. Here’s the weekly chart of EWY:

The $62 level is the line in the sand. We can use that level to manage risk. Own EWY above $62. Don’t own it below $62. Pretty simple. As long as EWY sustains trading above $62, the upside target remains $82, which is calculated using the range between lows and highs. In this case, buyers showed up at the $42 level and sellers previously showed up at the $62 level. Add the difference ($20) to the high of the range ($62) and we have a target of $82, or +24% from current levels. With defined risk of 6%, we have a reward:risk profile of 4:1. Not too shabby.

As always, we’ll let price dictate our involvement. To us, this is pretty simple. Own EWY above $62. If it’s below $62, someone else can have it. After all, our job is not to marry our positions. Our job is to be on the right side of the trade.

As always, you can get real-time updates and commentary about this development and many more opportunities here: @360Research

AND, you’ve got FREE access to an investing tool we’ve created, The Ultimate ETF Cheat Sheet. It’s an easy-to-use resource guide.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in this blog. Please see our Disclosure page for full disclaimer.

Breakout

One Important Divergence Bulls Need To See

May 1, 2017April 13, 2022

Last time we checked, new all-time-highs are not a characteristic of bear markets. While all bear markets start from all-time-highs, not all-time-highs start a bear market. With many U.S. Indices recording new highs last week, we see uptrends still intact. And new all-time-highs have a tendency to make traders and investors nervous. In the end, we don’t need emotions involved in our investment decisions. We need to use hard data and the weight-of-evidence to guide us. And since we’re students of the markets and use intermarket relationships as part of our approach, we can look across sectors, industry groups, regions, and asset classes to get a top-down, big-picture view of market health. As part of that exercise, we want to see what areas are not making all-time-highs. Simply, as all-time-highs in U.S. markets are recorded, are there any important areas not currently joining the uptrend party? This is called divergence. Once such divergence market bulls need to keep an eye on is the Transportation sector. Take a look.

For many logical reasons, the Transportation sector is a bell-weather sector. This means it gives important clues about overall market health. This is due to its economic importance. If there is no demand to transport goods and commodities, it is logical that overall demand for those goods and commodities is to be desired. Many reading this will identify this relationship in regards to Dow Theory. For brevity’s sake, we’re not going to get into the nitty gritty of Dow Theory. We’ll save that for another post as it’s an important tenet of technical analysis. For now, we’ll observe the relationship in the chart above. Right away, we notice the Transportation industry giving important clues to market health in late 2014 through 2015. As U.S. markets were making new highs (using the S&P 500 as our proxy here), the Transportation sector was not. It was diverging. Making lower highs and lower lows. By very definition, this was not an uptrend. Rather, it was a downtrend. A downtrend that signaled caution for the overall market, which ended up selling off hard in July 2015. It came as no surprise when the S&P 500 bottomed exactly when Transports did the same. Together, they recorded higher highs and higher lows, the most significant new high coming in early November 2016. Since then, U.S. equities have been ripping. However, with last week’s new high across many U.S. indices, the Transportation sector recorded a divergence as it did not follow suit with new weekly highs. This is an important divergence bulls will want to see resolved to the upside. A breakdown here (below $160 using IYT, an ETF for the Dow Jones Transportation Average), would be problematic for broad market health. Conversely, if bulls are going to see this market continue to rip higher, we need the Transportation sector to participate. A new closing high above 170.74 would clear this divergence and indicate ongoing health for the overall market. Keep your eye on this one.

As always, you can get real-time updates and commentary about this development and many more opportunities here: @360Research

AND, you’ve got FREE access to an investing tool we’ve created, The Ultimate ETF Cheat Sheet. It’s an easy-to-use resource guide.

Equity

Use This Simple Technique To Make Better Trade Decisions

April 24, 2017April 13, 2022

One of the most important jobs of a market participant is risk management. If you’re unable to identify when your position is wrong, then you shouldn’t be entering a position to begin with. Would we ever enter a crowded room without identifying where the exits are? I don’t think so. We have the same responsibility when entering a new position. At 360 Investment Research, when we enter a new position, we identify risk (and potential reward) by looking left. By looking left on a price chart, we can identify previous changes in supply and demand, which can give clues on where demand or support could appear. In a previous post, we used this simple technique to identify important levels on the S&P 500, one of the most watched indices and favorite proxy for discussing the U.S. stock market overall. By looking left, we can identify when buying momentum wanes and when selling pressure has entered the market. For example, if over a certain time period, price is making a series of lower highs and lower lows, we know sellers have more urgency than buyers for that time period. There is more supply than demand and price is trying to discover where the buyers live. So by looking left, we are using economic law (not opinion) to guide our investment decisions, entries, and exits. Using price removes mystery (and emotion) from our trade book. Let’s go through this exercise with the S&P 500 on daily and weekly time frames to identify where we are with the current market.

First, here’s the daily chart of the S&P 500:

When we look left, we can see price made of series of higher highs and higher lows from November through March. On March 1st, this important index recorded a new all-time-high. A series of higher highs and higher lows is indicative of a bull market. Since then, however, the characteristics have changed. They S&P 500 has recorded a series of lower lows and lower highs. Until this sequence is broken, the S&P 500 is in a downtrend on a daily timeframe. There’s no sugar coating it. Facts are facts and we’re not entitled to our own facts. Until the S&P 500 records a higher high and higher low, it’s in a downtrend on a daily timeframe. A good start towards this effort would be a close above the downward momentum trendline (in solid green). In addition, a close above 2368 would lock in a higher high with only a lower low needed to confirm an uptrend sequence.

Now for the weekly timeframe:

When looking left at the weekly data, it’s clear the S&P 500 is currently in a series of higher highs and higher lows. Can the market be in a downtrend on the daily timeframe and an uptrend on the weekly timeframe? Absolutely. In fact, that’s exactly what we have here. By looking left on both the daily and weekly timeframes, we can gain a better understanding of market trends. It’s not the only thing we look at, but it’s a big piece of evidence. And the current assessment has the S&P 500 in a daily downtrend within the friendly confines of a weekly uptrend. In essence, we’re in a correction within a larger uptrend. Price is moving downward in search of buyers. This is normal market behavior. Trees don’t grow to the moon and markets don’t go up every single week without periods of correction.

Where could this market potentially find buyers? Simple. Look left. We can quickly identify buyers have shown up near the 2330 level. On both the daily and weekly timeframes, that’s an important level to watch. Below 2330 and the next level of support for the S&P 500 resides somewhere between 2235 and 2265 (note: 2235 is also the value of the 200-day simple moving average, a common area of institutional support). Further correction into this area would still fall within the framework of a normal pullback in an uptrending market. On the other side of the equation, if buyers can provide enough demand here to break the sequence of lower lows on the daily timeframe (pushing the S&P 500 to a daily close above 2369), this makes an attempt at the weekly high of 2383 more likely.

As part of our every-day process as market participants, we need to identify sequences of lows and highs. This exercise provides valuable information to help us remain on the right side of the trade.

As always, you can get real-time updates and commentary about this development and many more opportunities here: @360Research

AND, you’ve got FREE access to an investing tool we’ve created, The Ultimate ETF Cheat Sheet. It’s an easy-to-use resource guide.

Breakdown

Pay Close Attention To These Important Levels On The…

March 27, 2017April 13, 2022

Whether we like it or not, if we participate in markets, we’re in the risk management business. If we don’t have a plan for when we’re wrong, it’s a problem. And if we don’t think it’s possible to be wrong, it’s an even bigger problem. The market is about possibilities, not guarantees. Markets owe us absolutely nothing and are brutally efficient at making us pay for poor decisions. As you know, we like to look for evidence to support our investment decisions. The best piece of evidence is price. What is it doing? What’s its direction? If price is making higher highs and higher lows, the trend is up. If price is making lower highs and lower lows, the trend is down. By analyzing price itself, we can determine the general trend and the potential change thereof. How do we do this in reality? Simple. Just look left. When we analyze price using charts, we find the current price and look left. See the daily price chart of the S&P 500 below. Notice that price has been steadily making higher highs and higher lows. It is a beautiful staircase upwards, hallmarking an uptrending market. That is, until March 21st.

On March 21st, many U.S. markets, including the S&P500, broke down from consolidation. Keep in mind, consolidations typically resolve in the direction of the primary trend. In this case, an upward resolution would have indicated a healthy market and an ongoing uptrend. When consolidations resolve in the opposite direction of the primary trend, we need to respect the weakness (aka supply) hitting the market. If there’s not enough demand to keep the S&P 500 ($SPX) above 2363, it’s significant. Not only did selling pressure push price below 2363, it also caused a break of the momentum trendline (in green) that’s been in place since early December 2016. Consequently, a lower high and lower low have been locked in. Lower highs and lower lows are the very definition of a downtrend.

What now? Buying urgency needs to pick up immediately to reclaim 2363 and reenter the sideways range established since the beginning of March. If buyers can’t accomplish this in short order, there is a very strong possibility for price discovery to take the S&P 500 down to an area of prior demand near 2277. A visit to the window of 2240-2277 would be a logical retest to see if buyers are serious there. It would equate to a 38.2-50% retracement (for you Fibonacci aficionados out there) of the rally since the November 6, 2016, low. More important, we need to understand this would equate to a correction within a bigger picture uptrend in place since mid-2016. A -5-6% correction from the March 1st high would be extremely normal behavior for a market that just broke out of a 2.5-year consolidation back in July, 2016. Any pullback here should be viewed as an opportunity to buy back into a strong bull market. If and when we visit 2277, we’ll revisit this information and see if there is additional evidence to consider.

As always, you can get real-time updates and commentary about this development and many more opportunities here: @360Research

AND, you’ve got FREE access to an investing tool we’ve created, The Ultimate ETF Cheat Sheet. It’s an easy-to-use resource guide.

Breakdown

Deutsche Bank Is Rock Solid?

June 10, 2016April 13, 2022

Whenever a major financial institution feels the need to send correspondence to its employees, informing them their “bank is strong and its financial reserves are adequate,” investors should become alarmed. And when the same institution encourages employees to inform clients the bank is “absolutely rock-solid”, an investor’s BS meter should be blaring over 100 decibels (dB). Such was the case back on February 9, 2016, when co-CEO of Deutsche Bank (DB), John Cryan, sent those exact words to his employees. When we learned about this back on February 9th, our dB level about DB went off the charts. We’ve seen this before. Let’s take a look and see if Deutsche Bank is “rock solid.”

As you know, price is the final arbiter of value. Price is fact. When we study price, we are studying facts. When we study the stock price of Deutsche Bank, we should be able to draw a conclusion on whether or not this bank is “rock solid.”

Here’s the weekly chart dating back to 1997.

DB is down 87% since its all-time-high back in 2007 before the great financial crisis (GFC) engrained itself in the investor psyche. At all-time-lows, we would want to see some type of evidence from price that DB is “rock solid.” However, to the contrary, here is the daily chart.

Deutsche Bank (DB) has broken down from a triangle pattern, which implicates a continuation of its 9 year downtrend. This breakdown is problematic as it targets a stock price for DB in the single digits. In addition, it’s self-evident this price action contradicts the bank’s claims. If anything, its stock price appears to be tied to a solid rock thrown overboard. From a global perspective, we hope this is a false breakdown and DB quickly recovers the $20 level. Because if DB is going to single digits (or worse), we don’t see how the global economy can avoid the counterparty consequences of their €41 Trillion in derivatives.

In conclusion, we hope we’re wrong and that price moves back above $20, proving that Deutsche Bank is not yet in trouble. Otherwise, the consequences of further price decline of this company would mean the exact opposite of “rock solid” for their bank, and for global markets.

Get updates about this development and additional market commentary here: @360Research

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.

Breakout

Twitter Ready To Fly

June 3, 2016April 13, 2022

You might have thought we “sold in May and walked away.” Not so as it doesn’t make for a great investment strategy. Sometimes, the market calls for patience and diligence. Other times, it calls for action and execution. Which brings us to today’s findings. One of the more battered stocks of the past two years has been Twitter (TWTR). Losing 80% during that timeframe, many have written it off as an also-ran in the growing social media landscape. In an industry dominated by Facebook, LinkedIn, and Snapchat, Twitter has been a mess since its IPO surge in late 2013. The carnage was so tremendous that we had to grab this screen shot of Twitter news headlines back on April 27th, 2016, right after their earnings release. We added the quotes in red.

As you know, we don’t invest based on hope, gossip, rumors, or opinions. We invest by studying the most important data point of all: price. When it becomes apparent that the herd is all headed in one direction, we take notice and are ready to act when the most important data point shows us a low risk / high reward entry point. The herd can stay on the right side of the trade for longer than you think… until it doesn’t. Price shows us logical areas where the herd either becomes exhausted or changes direction rapidly.

Below is a weekly chart of TWTR dating back to its IPO in late 2013. It’s easy to see the dramatic decline. It’s also easy to see that momentum has been diverging from price (annotated in purple) since the beginning of 2016. We like that. In addition, TWTR appears to be breaking out from a year long downtrend. We like that too.

Looking closer at the daily chart, we can see momentum and price divergence in this time frame as well. Throw in the fact that price likes to fill in gaps (such as the one created back on April 27th), we like this set-up. Low risk. High reward.

A quick move to $17 could materialize, and possibly more if this is a substantial breakout. Below 14.45, and we’re wrong. Above 14.45, we like it. Below that level, and we’ll give it back to the herd.

By the way, if you want to receive real time updates regarding this Twitter analysis, you can follow us on (you guessed it) Twitter! Right here: @360Research

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.

China

Red Dragon Awakes: Chinese Equities On The Move

April 1, 2016April 13, 2022

It’s no secret that Emerging Markets have been outperforming U.S. Equities since mid-January. We get it, the financial media loves to look at U.S. equities. That’s their problem. We aren’t myopic. Instead, we like to look globally across all asset classes to find opportunities. Why would we ever want to limit ourselves? There is so much opportunity outside the U.S., it would be negligent to ignore it. That brings us to today’s research release regarding Chinese equities.

Chinese equities have been hit hard for the past 11 months, dropping 45% during that time frame. Recently, however, the trend has changed. Buyers have stepped into the market, creating demand for Chinese stocks and moving prices off of their mid-February lows. Using FXI, an ETF that seeks to track the investment results of an index composed of large cap Chinese equities that trade on the Hong Kong Stock Exchange, we can take see the change in demand and take advantage of this potential opportunity.

Here’s a daily chart of FXI going back two years:

We can easily see the dramatic depreciation over the past year. We can also see that price and momentum (14-period RSI) diverged for over a month. We like that. Subsequently, buyers created enough demand to cause price to breakout of the year-long downtrend. This, combined with the aforementioned momentum divergence, is a great set-up for a well-defined risk/reward trade. After all, investing is not just about buying blindly and hoping for the best. Rather, our job as market participants is to minimize risk while investing in high reward scenarios. FXI fits our asymmetric risk/reward profile.

We think FXI is worth owning above 32.70. Below that, and we’re no longer interested. We’re not gamblers. We’re investors. We’re decision makers. After all, if we wanted to gamble, we’d head over to Macau.