It’s incredible, but a simple google search will still return a multitude of daily articles by top outlets on why the crash is imminent.
I mean today, these talking heads see a small pullback and make it seem as if this might be a top.
Same people who called the top in 2014 and then in 2015 and surely in 2016 and in every year that followed are calling it once more.
The problem here is that they have no data to back up why this can be a top.
How dare I be skeptical?
After all I’m no analyst, I’m just a simple data guy, what do I know…
Well, for one thing, I’m pretty certain that new all-time highs are NOT a characteristic of a downtrend.
If you scroll back the charts and check the worst crashes and bear markets there’s one thing you surely won’t find – it’s all time highs.
Yet, the world’s most important stock index just made exactly that!
Here’s a fresh look at the Dow Jones Industrial Average:
The second oldest and one of most widely followed indices in the world has just updated its all-time high record.
I think the question of who do I believe more – an average talking head or the $8.4 trillion index tracking the greatest companies ever created – is rhetorical.
This breakout also follows closely and officially confirms the recent all-time high achieved by its older brother – Dow Jones Transportation Average:
Now, I’m no analyst or advisor but if you are one of the people believing a bear market starts with a new high, I’m not sure how to help you.
And the Dow’s aren’t alone in hitting clear skies.
In fact, there’s great strength all around the world – even in the perpetually locked down Europe.
Here’s the Kingdom of Netherlands, for example:
A bubble, some would say?
Well, take a closer look and note how all these charts are breaking out of multi-year bases.
Some of them have done nothing or actually been down over the past few years, NOT up – this is anything BUT a bubble.
Look, you don’t have to believe me, but the fact remains – I’ve been vocally bullish when nobody would even try to listen.
I’ll remain so as long as the data tells me so.
You can go fight these trends if you wish so.
It is long overdue that I talk about the MJ industry…
The cannabis industry that was once “the next big thing” and pulled billions of investors’ hard-earned dollars across numerous IPOs flopped…bad over the years!
The ecstatic media went silent and the stocks went into oblivion.
However, after the most recent pop, some believe this once left-for-dead industry could be resurrected.
While these stocks have been in a steep downtrend for more than two years as every pop got sold and every new low was soon followed by another one.
With Joe Biden elected president, you better believe back to hearing everyone and their brother brag about how they purchased cannabis stocks.
But is there data to support this industry could rebound and reclaim their highs back in 2018?
Let’s look at MJ – Alternative Harvest ETF, the sector’s leading index / trading product.
If you ask me, there’s nothing bullish about this chart.
No progress has been made in 2020 and multiple resistance retest attempts got rejected and defended by the sellers.
This is a sideways trend at best and until the price stabilizes above $15-$16 – the patient is more dead than alive.
The relative performance picture isn’t inspiring either:
Relative to the S&P500, we’re still sitting near all-time lows.
There’s undeniably some positive momentum divergence, but still a whole lot of work to do before we can speak of outperformance of any kind.
In short, progress is being made, but weakness maintains across the board. The trend reversal, if happening at all, is still in its early stages.
If I was to get involved at all, I’d pick names that already show some relative strength and positive momentum.
Fortunately for us, I found a few that meet the criteria.
GrowGeneration (GRWG) is surely one.
It’s not a classic cannabis play – they don’t grow, but rather operate hydroponic and gardening stores across the US.
Considering the disaster the industry has been, this is a one fine looking chart!
On a relative basis, GRWG looks even better:
The stock is in a strong uptrend when compared to the industry.
An obvious trade that I see is to be long above and against $22 for a next leg into the $35 area.
And then, there’s Innovative Industrial Properties – IIPR. Much like GRWR, the company is not a producer, it’s actually a REIT!
They focus on the acquisition, ownership and management of specialized properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities.
The strategy sure pays off better than the traditional business:
Unlike its MJ peers, the stock has been a strong outperformer since March and is now breaking higher out of a multi-year base and has a well-defined risk against its former highs.
On a relative basis, the name has seen nothing but straight upside:
And did I even mention that for all this growth you’re getting a 3% dividend?
In my view, as long as $135 holds, this is a worthy long for a move into the $200 area.
Now look, I don’t advocate against buying the high flyers and news-makers.
All I’m saying is if you had listened to the media noise a few years back – you’re likely in no position to buy anything at all.
If you let the data speak – I believe there’s been and remains plenty of money to be made.
Listen, with all the talking heads on the tube calling for panic…
I think if you learn my trading techniques, you can filter out the noise and trade with an edge, while remaining calm, cool and collected.
According to the mainstream media, stocks got rocked yesterday — and they’re saying it’s all due to the uptick in pandemic cases.
To be quite honest with you, I try to ignore what they say because I’ve seen how the sausage is made…
And right now, they want to paint a picture of fear. As traders, we can’t play into their hands because once this news cycle ends, another one pops up… and who knows what they’ll say next.
That’s why I love to just look at the data and focus on the chart patterns — that way I can “predict” the direction of where stocks and the market may move.
Right now, the data is what’s helping me uncover trends in the market. That said, let me show you what I’ve picked up on.
One thing that distinguishes the up move of the past few months from the bigger up move of the past few years is the unusual amount of historic breadth readings.
I’ve pointed out a few throughout the summer
The thing is they normally happen at the bottom and point to a huge run ahead.
It’s kinda unusual to see them at the market’s highs.
Let me show you exactly what I mean…
Here are two things I pointed out back in mid-October:
Mid Cap 400, Percentage of Stocks Overbought
Small Cap 600, Percentage of Stocks Overbought
Are you noticing similarities between these two?
Just recently, both have printed some of their highest readings since the early 2000s.
A close look will reveal what i mentioned earlier – every extreme reading occurred right after the market lows and was followed by a move higher.
To give you an actual example, here’s S&P 500 from a few month back:
On June 8th, in the $3100 area it hit the highest reading since December 1991, and only the 8th of its kind.
We all know what happened next – the index has moved steadily(if we throw out the pre-election volatility) higher and is now hovering close to $3600.
So why am I talking about all of this?
Let’s fast a few months forward and jump back to the present…
On this Monday’s monster move, the SPY’s percentage of stocks hitting all time highs has hit a record reading.
In fact, much like % overbought – the highest reading in over 30 years.
That’s a long time and that’s a lot of stocks breaking out.
As evident from the chart, the only two times that the readings ever came close were the bottom of the Dot-Com crash and the bottom of the Financial Crisis.
And similar to the prior two, this’s happened right on the rebound from a major selloff – in our case, the coronavirus pandemic.
Will we see a similar run, following Monday’s signal?
We’ll have to wait and see, but the data surely is on our side!