Watch the video below for updates to our ETF plan. Please note, all the moves made off relative strength rank comparisons were made before the market reaction to Wednesday's Fed meeting started to really express itself. That's fancy talk for our portfolio taking a hit, standing now at $550,000 compared to around $573,000 on Thursday morning. Financials got whacked as the results of Fd rate "hawk talk". Commodities got whacked on a big move up by the dollar. Those the are the two key parts of the market that had been outperforming.
I ran our key relative strength tracking ahead of tomorrow morning's meeting. I'll explain how we rank and trend key parts of the worldwide market using Chaikin and RSMK score.
US Sector ETFs
US Sub Sectors
See you on tomorrow's Monday trading room video.
Weekly trading performance update. Entries follow the Chaikin checklist, cued either by a cross or bounce off the 21 EMA or the Chaikin OB/OS turning optimal in the direction of the trade. Exits for trend following trades is 1.6 ATR below the 21 EMA, for swing trades it's a touch of the outer vol band (in the direction of the trade) or an OBS reversal against the direction of the trade.
Closed Trades - Trade Log
Entries - Open Trades
AA trades separately and my report on a separate post. Macro Monday trading video below.
Above are the bull-bear power bar differentials for the major sectors that make up US large cap ETF SPY. This mostly fundamental stock evaluation metric reflects a mostly bullish outlook ahead for US stocks in the next six months. Click below to see a detailed relative strength comparison to SPY. Past-performance across countries/global sectors vs. SPY is ranked and trended across multiple lookback periods. This gives us an idea of "where the puck is going:"
US Sector ETFs
US Sub Sectors
Total US market (IWV) - Uptrending, overbought, declining money flow, declining relative strength vs. large cap US stocks, neutral PG rating. At short term resistance.
US Large Caps (SPY) - Uptrending, overbought, declining money flow, improving relative strength vs. total US stocks, neutral PG rating. At short term resistance.
Developed Countries- EX US - Uptrending, overbought, persistent money flow, improving relative strength vs. SPY, neutral PG rating. Through short term resistance. Appears to have more gas in the tank compared to US. This is where I trade "poor person's covered calls" - long dated in the money calls (out as far as Sept to January), short OTM calls. Because we're overbought and rated neutral, I favor aggressive overwriting near 40 delta to allow for a 3o to 90 day consolidation before trend continuation. Might be able to get a few rolls out of the deal before (hopefully) losing the stock to the upside.
Emerging Markets (EEM) - Consolidating, overbought, declining money flow, improving but persistently underperforming relative strength vs. SPY, upgrade to neutral PG rating. Recent new price high confirmed by oscillator high. Through short term resistance and has retaken the long term Chaikin trend. Stock has potential to drift up to $58, but not great risk reward here. Neutral and possibly neutral to bullish strategies. EEM is 40% China. Watch FXI.
China (FXI) - Downtrending but flattening (after a failed breakdown, it just put in a similar high in the short term), overbought, muted, but non negative money flow calculation may be affected by gaps due to time difference, weak but slightly improving relative strength vs. SPY, Very Bearish PG rating. Bouncing down off short term resistance. While there may not be enough horsepower to breakout, I'm cautious about being too directionally aggressive to the downside here. Failed breakdowns often result in an overcorrection to te upside. While I might entertain an out of the money short call spread, to me, China is a candidate for a neutral option strategy, either double calendar/diagonal or iron condor, depending on volatility. For me, the China chart gives me more confidence to trade EEM neutrally rather than bullshly.
Eurozone and Latin America: Uptrending, overbought, persistent money flow, proving relative strength vs. large cap US stocks, very bullish PG rating, and ILF breakout to new highs. Eurozone trend a little more mature than Latin America. Latin America official "personality change". Option traders: look to Brazil as proxy.
20 year Treasuries: Second guessing trading signals is still a thing for me, 20+ years into my trading career. Very Bearish rated bonds are on their upper end of a consolidation trading range with the OB/OS oscillator overbought and near a declining long term moving average. IV rank may keep short call option premium selling off the table. So skewed double diagonal or double calendar that offers upside for sideways, downward or even slight upward price movement is where I'd look. Perhaps the best thing for the market would be for bonds to remain in a trading range. A breakout move to the upside is a flight to safety and a breakdown move means a spike in interest rates. Both could be bad for stocks. Persistent moneyflow over the past several months make a spike to the downside less likely in my opinion.
Broad commodities (DBC). Uptrending, new highs, persistent strong money flow, persistent relative strength vs spy (and most stocks). Recent short term breakout to new highs suggest much higher prices in the future using Fibonacci extensions. Price target: $23.5 (161 Fibbo) and $25.50 (200 Fibbo). Current price - $19.08. Serious traders will trade underlying futures contracts to compensate for the extra tax paperwork and price erosion that comes with holding commodity related ETF's. Or, trade companies where the stock price benefits with an underlying up move in the commodity price. Examples follow.
Very Bullish rated OII provides engineering support for offshore drillers. As the price of oil increases, the economics of extracting oil from deep sea deposits becomes more attractive. Money flow, relative strength and price pattern all showing reversal of long term bearish trend.
GDX aggregates gold minders into one tradeable instrument. GDX is pulling back (and bouncing) within the context of a multi-month uptrend with persistent money flow, a recent fast transition from Bearish to Bullish Power Gauge in less than 60 days and recent slight positive relative strength vs. SPY after a protracted period of weakness. A break above 40 gives this stock the potential to run but without the trader having to make a bet on an individual company. Price volatility makes two way trading in the form of covered stock or diagonal option trades more attractive. My pick for trade of the week is to acquire GDX as a naked, long-dated in-the-money-call tomorrow, hold the option until overbought, then sell the .30 delta near month option. Hopefully, price continues it's series of higher highs and lower lows, allowing me to leg in and out of the short option while allowing the long, in the money option to appreciate in value.
We stack rank ETF performance across various lookback periods and trend them to get an idea of how money is flowing across the globe. We use RSMK as the underlying indicator to compare relative performance of ETF's, but what you see are the comparative rankings over a ten, twenty, thirty...up to a 160 trading day lookback period. Our sweet spot for relative strength performance is a 60 to 120 day lookback period. If the ETF is ranked in the top 1/3 of all ETF's compared in the group consistently across a 3 to 6 month period AND maintains or begins to recover relative strength in the near term (10 - 20 days after pulling back), that's the ideal set up for trend continuation, especially if stocks are generally uptrending. If a shorter time-frame moving average is above the longer time-frame moving average in multiple time-frames, the RSI is above 50, but especially above 60 (and not yet to 70), and money flow is above .1, all of the preconditions are met for making it onto our trading watch list. We then wait for Chaikin checklist conditions to play out to time our trades.
We look at relative strength in a number of ETF battle groups that represent important investing themes. This analysis gives us a better sense of what's happening in the global capital markets than reading the Wall Street Journal in its entirety every day of the week.
Global Relative Strength Comparison: it's ROW (Rest of world) time
commodities outperforming stocks
US SECTORS - real estate boom and stocks tied to oil and gas keep rockin. Is tech beginning to recover?
US INDUSTRY GROUP STRENGTH - Energy Services, Aerospace, and a bunch of tech and telcom industries
International - Latin America shows persistent strength, India and southeast Asia on the mend. SPY (not shown) Falls to Row 32
I was reminded over the weekend via an email from reader/viewer Peter, a retired engineer trader who has held us accountable like none other, that our site mandate was to be transparent about our trading using the Chakin system so that those interested could follow our experience before making the decision to invest in the app themselves. While we have been incredibly transparent with our ETF trades and options overlays, our demo single company trades following the Chaikin checklist have been woefully undercovered lately on this blog. Worse yet, not all of the trades have been covered in trading videos , so skeptical followers who don't us well could suspect that the entries are made up.
Well, I can't do anything about the latter (other than to promise that's not the case), other than to rely on the trust built up over the years and report the trades. So, here goes. Everything this year follows the Chaikin Checklist, long or short. We don't trade often, but we use a consistent set of rules, which I'll cover in tomorrow/Wednesday's video.
Here are the trades still open in my Chaikin demo account
Here are the trades I've closed out.
These links are dynamic and should update in real time as we add new trades or close out old ones. These are only my trades, and I expect AA will share his separately. (He takes checklist trades mostly from the short side).
You'll notice my position size varies widely. That's because i'm taking them in various accounts of different values. My sizing rule is consistent across all accounts when it comes to directional, individual company stock trades: I'm sized to lose no more than 1% - 2% of net liquidating account value if stop is hit and to not have any one position exceed more than 10% of my portfolio value at any given time.
One further note about this affiliate site. For the past 18 months, we have not profited through affiliate sales (that's where we drive subscription business to Chaikin and they pay us a small commission). Chaikin was recently sold, and they have suspended affiliate sales and discounts/free trials we pass on to our followers. They still give us access to the app for promotional consideration. While our business relationship with the Chaikin team has all but disappeared, our enthusiasm for the app and the results it has brought us over the years, remains high. We like to trade and enjoy making these videos, as well as collaborating with traders who use the Chaikin model. We think what Marc and his son, Eric, have built is truly a remarkable way to model the market and make smart, well timed bets.
Thanks for holding us accountable, Peter.