The Move to Safety
February 2020
Arun S. Chopra CFA CMT
Today's post is a quick update to my market communication over the last month or so and highlight my shift to safety as the year began. Today will be brief as there is much work to do for myself and members this weekend. I did want to update this in a timely fashion however particularly for followers and those new to my work. I did not predict the crash, but I did derisk in front of it using a more sustainable approach.
The first section is some general thoughts and my posts about twitter and trading in case you haven't seen them, the second section is the what I said and when I said it stuff.
General Thoughts
I noticed Keith McCullough posted the following this week and I couldn't agree more. More on that in the second section.
Who are your market sources? What were they saying 2 weeks ago? How about 1 month ago?
— Keith McCullough (@KeithMcCullough) February 28, 2020
With markets falling back to basically January 2018...
FANG Hits an All Time High
Hi Everyone,
I recently came across a post on twitter showing the ETF FNGU being the best performing ETF of the year.
But that doesn't really tell the whole story. FNGU has actually been running since Q3 2019.
During a market outlook video in October I showed this setting up through a combination of behavioral and technical techniques. These are the types of videos and ideas found in my Fusion Active service (please be aware this is a 3X levered ETF and was not for everyone).
The chat room is also live daily now, not for day trading but for generating single stock swing ideas. Many of these can be held from weeks to even months if not longer but is a new feature that allows us to communicate in real time.
Arun S. Chopra CFA CMT
The S&P Hits a New High
Arun S. Chopra CFA CMT
With the market having moved to new all-time highs, I thought it was a good time to review and share some of my research from this summer. Although the path out of the December low has surprised many, there were lots of reasons to be constructive and optimistic throughout the move.
This dovetails well with my broader melt-up call ("The Melt Up") in 2017. The larger takeaway from my work, I'd argue, is bucking the crowd through experience and avoiding the constant market crash rhetoric by looking at markets holistically.
In 2017, the melt-up call was a combination of market internals and Fed policy, while the 2019 grind higher was much more about price action and valuations coming out of a material low (December 2018). Each situation is different, but under the surface involves similar techniques (breadth, sentiment, trend, etc.).
Today I thought I would walk through a few concepts that were helpful over the last year as the market rallied to new highs (chart...
The Software Sell-Off
Arun S. Chopra CFA CMT
September 2019
- Software stocks fall aggressively.
- A look at how this setup came to be over the last few months.
- How inter-market analysis and timing tools preceded the momentum break.
The big story last week was obviously the declines in software and momentum stocks. The big story for the year has been the bond market and overall move in yields. With the steep decline in rates in the US and the move to negative rates abroad, there has been a lot of confusion in equity positioning and market outlooks.
Today I will walk through the move in bonds, and the specific relationship to software and momentum names, as well as how (and why) I saw a lot of these breakdowns setting up in advance. I will primary focus on the making of, and thinking behind this trade in general, and conclude with some charts on the stocks themselves.
This will not be a larger investment outlook on the space or the stocks themselves but more of a review of how I believe we...
The NVDIA Dump
Arun S. Chopra CFA CMT
December 2018
- Nvidia drops 50%.
- See why I shorted the name in the 230s.
- See how Bitcoin, volume and momentum all diverged dramatically before the decline.
Part 3 of the stock dump series starts here, with today's focus on Nvidia (NVDA) (see part 1, The Micron Dump (NASDAQ:MU) and part 2 The Netflix Dump (NASDAQ:NFLX)).
Again, these articles are designed to help show a multidisciplinary approach to stock trading, investing, and position management. Let's jump right in.
It all started in June when the crypto market cracked and was down over 60%. There were numerous analysts at the time who tried to claim this would not impact the semi space. I took a different view, especially given what we were seeing with the broken trendline in the semiconductor index.
Readers of my work know I like to look for intra-market relationships vs. strict fundamental narratives. In Micron's case it was the auto index that was diverging dramatically, and in Netflix'...
The Micron Dump
- Micron drops 40%.
- See why I shorted the name in the 50's.
- See how behavioral finance can assist in determining fear and greed.
Every now and then there's a trade that really opens up an opportunity for a conversation about fundamentals, price action, and behavioral finance. Turns out Micron (MU) was just that stock in 2018.
I am sure Micron is big favorite here at Seeking Alpha. It has all the parameters I assume the bulk of readers care about. Strong cash flows, demand as far as the eye can see, large cash position, a PE of under 5.
But that didn't stop the stock from dropping 40%. In fact it dropped significantly more than the market, and almost as much as high flyers such as Netflix (NFLX) and Nvidia (NVDA).
Today I want to provide a different view on the stock rather than the traditional deep value, fundamental can't lose bet.
Now, many are going to say the decline is due to China, or DRAM pricing, or any other host...
The Fed Pulls The Punchbowl
Arun S. Chopra CFA CMT
November 2018
- Markets come under pressure as the Fed pulls the punchbowl.
- A look at how to monitor liquidity across equity markets.
- Why and how I shorted NVIDIA and Netflix near their peaks.
A deeper dive into credit and dollar dynamics.
After calling for major breakout last year in "The Melt Up", I switched to a much more cautious stance as the calendar turned over. There were four major factors coming into the year I was most concerned about. I often see laundry lists of concerns; I have found that somewhere between pointless, redundant, and confusing. The following four however lined up perfectly and were powerfully simple (no particular order).
- Proprietary exhaustion indicator fired in Jan., first time since 2014
- Election Year Seasonality
- Fed Policy
- Trade War
It was these four reasons that I stayed balanced in 2018, with 65% equity exposure on average all year, with much of that long/short. As the year has progressed, the above framework...
3% Treasury Yields Still Don't Matter
- In February I argued the rate move was overdone.
- At the time many assumed rates were breaking out.
- How price and sentiment help determine future price action.
In February I wrote an article titled '3% doesn't matter'. This was about two weeks after the market hit its peak with respect to the overall rising rate fear.
There were 3 primary takeaways from my initial article.
- Rising rate concerns had hit a fever pitch
- 'Bad' charts were being passed around everywhere, artificially adding fuel to the fire
- The correct interpretation of yields showed a healthy rotation and/or normalization process
Today I will review the 2016-2018 cycle in yields, including price action, sentiment, and the impact to specific sectors. I will then take another look at where we stand overall on the 10-year treasury yield today.
Price and Sentiment
I've been consistently quoting Gundlach's comments on the value of technical analysis from a few weeks ago, more...
