11/30 December Market
A Holiday Wish List
Relief Rally —> Recovery Rally —> Melt-Up?
Last Sunday’s note wrote about a relief rally, one that could potentially turn into a recovery rally that takes the market back into a melt-up like environment. Are we there yet? I’m not sure, the market certainly delivered the relief rally, but I’m still cautious on jumping back onto the melt-up wagon (just the week before the trade was short). After repeating “bullish until proven guilty” for months, it is a different pace to trade these two faster moves just a week apart.
Relief rally: Check plus Risk Criteria Reset 0/3
Recovery rally: TBD
Heading into this week I’m considering establishing long position in ARKK above 81, this long idea has more confidence when supported by the S&P 500 trading above 6870. With the risk-off criteria reset no short trade are considered until another risk-off alarm is triggered, the S&P 500 closing below 6735 will be a necessary component to that alarm.
This weeks note closes out November, starts December, and provides update to the active trade ideas. As the year winds down, so have the trades. Garmin, Barrick, and Tencent remain active, Coupang after a long trade was closed last week.
Risk Off Criteria: 0 of 3 Active
The core risk analysis ended last week with 0 of 3 active criteria, resetting the alarm that was triggered earlier in the month. (see “How I Think About The Risk-Off Alarm”)
Trend: Price closed above the short term trend (20-day moving average)
Breadth: Positive breadth all week (short week)
Momentum: Momentum pointed up, recovery
Navigating The Short Term
The S&P 500 had strong successive sessions through last week, closing above the short term trend, a prior breakout level (6750), and avoided a bearish crossover between the two moving averages. With the risk-off alarm cleared navigating the short term is simple:
Bullish with price closing above 6735 - 6750, closing prices above 6869 will look to set up a rally that resumes the pathway towards the psychological 7000
Bearish consideration can resume in the scenario of another risk-off alarm, losing the short trend as a necessary component of that places additional focus on 6735
7000 — purely psychological consideration
6869 — mid November high, prices above strengthen a bullish backdrop
6750, 6500, 6300, 6147 are prior breakout levels that marked the next advance
6750 is slightly above the short term trend and should be considered support in the immediate term
6500, 6300 and 6147 consideration as support
6300— a breakout level aligning with the long term moving average (200-day exponential), this is becoming a technical magnet
Risk On Barometers— ARKK & IWM
ARKK - ARK Innovation ETF
ARKK rallied along side the market through last week hitting the 79 level. The relief trade from 71 was closed last week.
The consideration is now to establish long position in ARKK when prices close above 81. This will recapture the key trend line, and for me add confidence that the melt-up trade is the one to navigate. I remain of the speculation that there is no market melt-up without ARKK above the 50-day moving average. This was the core trade from April through October and if a melt-up is to resume, I intend to continue to use ARKK as the outperformance trade vehicle.
The 50-day moving average will continue to be considered as resistance. Closing above moves greater probability towards the melt-up narrative. This is the hold-out data point at this time.
IWM - Russell 2000 ETF
The Russell 2000 ETF is back to suggesting the melt-up is back on with closing prices above 242.
Bonds (20+ Year Treasury Bond)
No changes to bond positioning from prior week.
The bond trade continues to do what I had hoped for when starting to establish the position earlier in the year, and recently increasing exposure up to 25% in September. I have added the 93 level to the chart to monitor for acceleration towards 100, for now the area has instead cooled back towards ~90.
Sentiment & Positioning Check
For an entire month now the CNN Fear & Greed index has reported Extreme Fear. The sentiment low on November 20 did well to create consideration for a relief rally. Nonetheless— this reading continues feels disconnected and has not provided much alignment with fund manager positioning at this time.
Active fund managers remain with strong exposure to US Equities.
Trade Idea Updates
To recap the structure of the trade idea presentation, each idea is accompanied by my preferred accumulation range and a specific risk level. If the price surpasses this level, it’s crucial to reassess the viability of the idea. These ranges and risk levels remain consistent with the original idea unless otherwise stated.
The updates are a continuation from notes shared in the prior months series of updates
There are 3 active individual trade ideas:
Small Cap Equities
No active individual trade ideas in the small cap equities. The category will be managed through the ARKK trade.
US Equities
Garmin, Inc (GRMN), 190-200, Risk < 183
The chart is in rough shape following the earnings response— this qualifies as bottom fishing. I have the opinion that the brand has strong tailwinds and they are projecting double digit growth in most of their product categories. I’ll manage the idea with two potential areas for accumulation.
The preferred accumulation range is 190 - 200
The risk level is 183— if prices fall below this consideration for a secondary attempt at 170 could be made
Recovery rally target set to 230
Outside of US Equities
Tencent Holdings Ltd (TCEHY), 35-40, <75
Original Idea Introduction — here
Tencent exposure remains at 1/3
The long term moving average at 72 has moved closer to current prices, this remains a key level on pullbacks, I am maintaining the risk level slightly above at 75
Coupang Inc (CPNG), 15 - 17.50, <28 — CLOSED
Original Idea Introduction — here
Coupang has been closed with the risk level 28 trading
This has been a long, and rewarding trade despite not hitting the 37 target. I will maintain Coupang on the watch list for consideration to resume a trade here in the future.
The Gold Trade
Barrick Gold Corporation (B), 13 - 15, <30 (Revised from 20)
Original Idea Introduction — here
The gold commodity continues to trade high 4,254/oz to end last week— this continues as a healthy backdrop for gold miners.
Following a strong breakout over the last three months, Barrick has formally established the next “higher high” in the monthly structure
Since trade idea inception this chart has been updated with a note “this is the only chart monitored on a monthly time frame”, the speculated sharp advance is underway and the position remains at full exposure
Exposure remains at 1/2, with final profit targeted at the 46-55 range. Consideration for a extended advance will be reviewed in that scenario, but as a fresh trade.
Summary Outlook
The market has cleared the risk-off environment, and most of the data I am looking at is pointing towards the melt-up resuming. ARKK above 81 is the hold out, and the S&P 500 trading above 6870 would add fuel to that narrative taking center stage again.
My portfolio heads into December up 33% on the year— after trading the breakdown and relief rally well. I am relaxed into year end and comfortable taking a cautious pause before jumping back in with two feet. It was just a month ago where it felt that each letter started and ended with “the market remains bullish until proven guilty”.
Strategy Updates— Immediate Term
Key Bullish Criteria:
Shopping Zone: S&P 500 > 6735
Risk-Off Signals: 0 of 3 currently active
Risk-On Trade: ARKK > 81
Individual Positions: Long TCEHY, B, GRMN
TCEHY - 1/3
CPNG - closed
B - reduced 1/2
GRMN - opened 1/4
Bearish Scenarios:
No bearish consideration until risk-off criteria trigger an alarm with the simultaneous breakdown of trend, breadth, and momentum.
Long Bond Exposure: ~25%
Disclaimer: This publication is for informational and educational purposes only. Nothing herein should be considered financial advice or a recommendation. I am not a financial advisor. This content is meant to document my thinking, and hopefully encourage yours.
Quality update. Thanks for keeping it real
Nice!