A Chinese Flag

My second favorite pattern to enter in a stock is the bull flag. Because flags are viewed as half way consolidations, the higher and tighter it is the better.  My experience tells me when both exist, the higher the rate of success and the higher the upside.

Weibo (WB), a fast growing Chinese social media company, traded sideways within the blue boundaries for almost 2 years after it IPO’ed. As you can see in my chart below, it broke out in May and rose more than $120% in 5 short month. After creating a divergent overbought high, the stock has since pulled back and consolidated nice and orderly. While price has yet confirmed an end to the consolidation or breakout out of the flag, it is approaching its 200 day moving average which would be a likely place for it to find support.

If WB should follow the traditional bull flag pattern, as a halfway pattern it presents one heck of an opportunity, something north of 100%. I probably don’t need to mention the inherent risks of international stock investing especially against the backdrop of a strongly rising dollar but those with a higher risk tolerance could find this a great addition to their portfolio.  

December 2016 Charts on the Move Video

Happy New Year

My latest video, a quick recap of the important charts of 2016 is available for viewing at the link below

https://www.youtube.com/watch?v=g70om7d6VVQ

Next Stop 108

With the FED raising interest rates yesterday and setting the expectation there will be 3 more in 2017, the dollar as projected ripped higher and confirmed November 21st breakout from the (blue) rectangle. The ongoing saga of whether the dollar has topped or just consolidating for its next move higher can finally now be put to bed after 95 arduous weeks.

Those that follow know rectangles are my favorite patterns to invest in as the lines for buying and selling are easily determinable, as are the targets. In this case the pattern break and confirmation projects to an upside target of ~$108.  On a much longer term view, if this current breakout turns out to be a continuation from a very long term bull flag, that target is north of $120.

I have been talking about the possibility of the USD testing all-time highs since it broke out of long term consolidation in mid-2014. Not wanting to repeat myself but I do because the implications are huge. It is THE elephant in the investment room and should not be ignored. Understanding the intermarket relationships (correlations) between your investments and the dollar will be valuable knowledge and keep investors on the right side of the track going forward while king dollar pushes higher.

High on POT

No, my title is not referring to cannabis but rather the world’s largest fertilizer company Potash, NYSE symbol, POT.

My favorite (and one of the most statistically effective) breakout patterns is that from a rectangle.  If long enough in duration, this type of consolidation allows most sellers to rid themselves of their shares leaving only buyers and those who are still short. This is an environment that can have incredible upside potential as buyers step in bidding the price higher while shorts are squeezed, a very potent breakout combination.

As you can see in the weekly chart below, POT bottomed in January while RSI momentum formed bullish positive divergence, providing supporting confirmation a likely bottom was in place. As you would expect due to the strength of the decline (~55%), it took a long time (almost a year) for the majority of sellers to exit and a potential reversal to appear. Price broke out of the blue rectangular box last week with conviction. While it was on higher volume, I would have preferred it be higher. Based upon this, It would not be unexpected price to fall back to the upper boundary of the rectangle and test it as support before it takes off higher to its pattern target some 17.5% higher in the weeks/months ahead. Beyond the pattern target, real resistance does not come into play until the 25-27 area (which is where I expect it to finally go) providing an upside potential of over 50%.

I’m Here to Collect $93k

While not tops on the list (that honor goes to Alaska), California has the second highest public pension unfunded liabilities totals, estimated at $1T (yes you read that correctly it is one trillion dollars with a T). Which, as it turns out, is approximately $93k per each CA household. Oh, and by the way, this is up $15k since 2014 alone. Bad investment returns apparently are to blame. 

I’ll pause here and let that sink in. Every household will be responsible for contributing $93k to meet these commitments!

The bottom line is that either the pension payouts will need to be lowered or taxes will need to be raised to meet the obligations (or some combination thereof). Which do you think it will be? Do you have your checkbook handy, just in case? And no, there is zero chance we will be able to “grow our way out of the problem” so don’t go there. And unlike Social Security, California will not be able to print money and bail out the system like the Government can and will likely be forced to do with Social Security.

Much of the blame for this mess rests squarely on the “experts” who, when establishing the annual funding levels, used an investment rate of return that was unrealistically high which helped keep contributions to a minimum throughout the years. Their model may have been reasonable some 40-50 years ago when the pension systems were established but not in a dynamic, changing world. The most frustrating thing about this mess is that it is not a new revelation as it has been known about it for years (and decades).  But rather than address the issue, those same experts and politicians just kicked the can down the road. So if you ever wonder why, under most circumstances I recommend tapping into your pension as soon as you have access because it is my belief most pensions will fall short of being able to meet their full obligations for the reasons above. As such I am a full believer you should take what you can while you can. As Stevie Guitar Miller sang, “Take the Money and Run”

To read more on this future crisis go to  

http://www.kersteninstitute.org/blog/stanford-universitys-pension-tracker-pegs-total-california-pension-debt-at-1-trillion-or-93000-per-california-household-in-2015-up-19-from-2014