How long will it finally take before every Tom, Dick and Janet decides to pile on the current market rise and send it Mach-4 headlong towards the sun?
How long, indeed?
We took the question to our panel of experts – the Normandy Bourbon Ballroom – and over a sip of the wildest turkey requested their best thinking.
The results will shortly be published in our annual letter to shareholders, Normandy’s widely followed Tuxedo, Caviar & Turnbuckle.
But here’s a sneak preview…
In short, our who’s who of brilliant strategists and well-heeled global savants used the following two charts to explain their thinking –
The above chart depicts the NASDAQ for almost thirty years. As you can see, the top in 2015 fell in line with that of the dot.com bubble in the year 2000, besting it, in fact, by only a small margin.
And for many in the technical analysis camp, that’s it. What you’re looking at, in their view, is a multi-year double-top that seals the deal on the latest six year bull market. Resistance at 5200, they say, is formidable (blue line), and we have nothing to look forward to but a downward spiral from here until Armageddon washes the blood of the bourbon-swilling sinners into the tides of Hades.
Dot.com is a Red Herring
But that’s not the way our panel sees it. Up in the ballroom, the lads and lassies are quick to point out that the dot.com frenzy ratcheted up the index from 1400 to 5200 in a mere year and a half, a 200% gain that was perfectly parabolic in its final stages. Compare that, they say, with the more measured six years of the current bull market, that pushed prices higher by the exact same margin, but without all the froth and with no sign of parabolas or asymptotes.
Any comparison with the last push to these levels is, in their view, a deceitful one.
Look now at the S&P 500 for the last 23 years.
In this chart, we see a genuine double top that unwound over the better part of a decade (red line).
But since then, we’ve also seen a tremendous rise to new heights that essentially put the lie to the end-of-the-world narrative that accompanied the Lehman meltdown of 2008 and that had many screaming for a technical ‘triple top’ precisely when the broad market was signaling a new violent upsurge was underway (black dot).
It was the spring of 2013 and almost no one saw the breakout coming. There was no triple top, and our roundtable had it pegged. In fact, the next 30% rise in the broad index brought some of our most prosperous trade ideas your way.
What remains to be seen is whether the current lines of resistance will fall just as they did three years ago, sending us hurtling further into the ether.
We believe it will.
According to the chart above, we’ve seen a tremendous effort to break above resistance. The blowup (in black, above) shows clearly that the S&P has attempted in at least eight of the last twelve months to crack above the 2134 level that marks the last top. And it’s currently headed back there again.
What will happen? Will it succeed? The index now sits at 2082, just 52 points, or just 2.5% below that all-important level.
No big deal, friends.
The NASDAQ Composite has 5.5% to go before it bests its all-time high – slightly more work, admittedly, but, then, for the NASDAQ and its high flying cohort, that’s not such a great feat.
The Dow, incidentally, is also just 2.5% below its all-time best marker.
Our contention is simple. After a brief struggle, all the major indexes will rise to new highs. Thereafter, there will be no time to deliberate, as all the fund money that has been dormant until now will simply flood the equity market, sending it screaming feverishly toward cruising altitude and getting everyone high in the process. And that will all transpire just as ma and pa are getting ready to climb aboard and throw their net worth into the game, too.
So why wait?
When it finally happens, everyone will be a technical analyst. Everyone will be talking about resistance cracking and the ‘inevitability’ of a supercharged run higher.
But that will be in retrospect.
You have the tools now.
Ain’t no reason for delays.
The Trade of the Week!
Before we get to today’s initiative, let’s look at a trade that was launched just three weeks back, on the 24th of March. The letter was called From Staples to Health Care, and there we initiated an inter-sector long/short trade that pitted the bruised and battered healthcare group against a wild and wooly consumer staples sector. We used two representative stocks, drug delivery company McKesson Corp. (NYSE:MCK) and Tyson Foods (NYSE:TSN).
The recommendation was to buy the MCK January 180 CALL for $6.10 and sell the TSN January 67.50 CALL for $6.30. Total credit on the trade was $0.20.
The MCK CALL trades for $7.90 and TSN for $5.21. Sell the former and buy back the latter, and you take home $289 for nothing laid out. Figuring for minimal commissions, that’s 1826% in three weeks.
Matt McAbby Named World’s Foremost Market Technician(-fish)
We’re going to bring it home with a very simple trade today, a move that plays on the sector rotation theme.
And it goes like this.
One of the best performing sectors of the last half year has been the utilities, which bested all the major groupings in the market save the telecoms.
Opposite them, the healthcare sector has suffered tremendously over the same time frame.
But all that looks to be changing now, and with the upcoming push to new highs – which we see transpiring in the next two weeks – the fortunes of the utilities and healthcare will reverse.
Look here –
This is the Health Care Select Sector SPDR ETF (NYSE:XLV) matched against the Utilities Select Sector SPDR (NYSE:XLU) since last summer. We expect the gap to close dramatically in the coming months and therefore …
This recommendation is for members only…
Our recommendations have yielded over 1,247.91% since 2011. Cancel any time – manage your own membership…
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Options Trader Elite recommends you consider buying the XLV September 73 CALL for $1.55 and selling the XLU September 49 CALL for the same price.
Sector rotation, bro(-fish).
Many happy returns,