INVESTMENT EDGE
It's really clear to me at this time, global investors are strongly favoring stocks and we continue to charge higher across the globe. Of course. things can and do change in an instant so you need a plan, but until that happens we are in an equity bull market that cannot be ignored.
My latest video making this case is available for viewing at the link below
Are you seeing the same?
I haven’t spent much time talking about retests in the past but because the dollar is in the process of one, I thought this would be a good time to do some teachin’ to ya’all. Quite often, after a long consolidation and breakout, an investment will struggle after the breakout and then fall back to retest the original breakout level. The reasons for this are numerous and I will leave them to another post but for now the key is recognition and the understanding this is a normal occurrence and provides an objective entry for those not already invested.
Using the US Dollar chart below you can see the dollar consolidated between the lower and upper blue (support and resistance) lines for almost 2 years before it broke out higher and peaked the first week of this year. Since that time it has fallen back to the original upper blue line which has flipped from resistance to now becoming support.
If you are a new reader you may be wondering why I spend so much time on watching the dollar. As investors we are very interested in what the dollar does because it can have a dramatic effect on other assets including bonds, stocks, commodities, energy, etc. Most global commodities are priced in dollars. Because the dollar is now sitting on support combined with the fact it is still in a long term uptrend, we must give the benefit of doubt that this will resolve to the upside. But we also know there are no guarantees so you need to have a plan in case this thesis is wrong.
If the dollar were to break down below support and move substantially back into the prior consolidation area, I would view this as a very bearish signal and the potential signal the uptrend is over (and my prior blog post declaration of our next stop for the dollar of 108 being wrong). There is a saying in TA that states “from false breaks come big moves” and means that when an investment breaks out of consolidation, does not hold and falls back, it usually leads to big moves in the other direction. While the odds are not in stacked in the favor of that happening, if it does, the ramification for investors could be huge.
One way to measure stock valuations (P/E ratio) is the CAPE ratio, which smooths earnings over a ten year period. This ratio for the S&P 500 hit 28.7 this week, which is in the 94th percentile going back to 1928.
The only periods in history with a higher CAPE ratio were July through October 1929 and February 1997 through April 2002.
While it doesn’t mean prices can’t go higher, because they can, it just means the risk to reward at these levels becomes much less compelling. Also something investors should keep in mind, the higher this goes, the worse the eventual snap back can be.
I find most IPO’s follow a similar path of rocketing higher with unabated enthusiasm until they finally succumb to the eventual selling of a Wall Street over-hyped sales pitch. There usually is nothing wrong with the company but rather it’s a matter of running out of buyers as the IPO chasers and company holders take profits. No, not every IPO acts this way but, in my experience, most do which is why I typically avoid them. But let’s be clear, I don’t avoid them completely because they eventually become very attractive investment targets once they finally bottom from their IPO induced hangover.
Teledoc, TDOC, is a great example of this “IPO pattern”. (I would recommend readers memorize this as it is one of the market’s best money making patterns that continues to repeat and provide smart investors a way to bank coin). As you can see in the chart below, after 5 short weeks and a more than 65% climb from its IPO, the sellers overwhelmed the buyers and pushed the stock to level more than 50% below the IPO price, where it sniffed the $9 level and eventually formed a divergent low double bottom.
From that double bottom, TDOC quickly rose more than 100% in four short months and has since consolidated sideways in an attempt to digest those gains and build energy for its next move. While the week is not over, a breakout with confirmation (ie, bullish RSI momentum, volume confirmation and along with price) above last September highs (blue horizontal) provides a very attractive and objective entry who’s first upside target is 20+% higher. Assuming it makes it there, the next logical resting point is more than 50% above which is what has me watching this opportunity with great interest.
Are you finding its hard to keep up with the ever changing world and it is passing you by? The book, Reinvent Yourself by James Altucher provides some very poignant “take-aways” as he tells his reinvention story of how he handled the constant change and stress caused by our ever changing world. A few nuggets that hit home for me:
“You are not just the average of the five people around you. You’re the average of the five habits you do, the things you eat, the ideas you have, the content you consume, etc.”
“Many people die at 25 but are not put in the coffin until 75. The learning stopped for them early.”
“If I want to sell an idea, if I want to convince, if I want someone to like to me, I have to figure out how to connect.”
“It’s hard to be the greatest at any one endeavor, but by combining passions, it’s much easier to be the greatest in the world at the intersections of those passions.
“Not a single ounce of greatness in history ended with thoughts. It happened with hands. With actions.”
“Money is a side effect of trying to help others: of trying to solve problems. So many people ask, “How do I get traffic?” That’s the wrong question. If you ask every day, “How did I help people today?” then you will have more traffic and money than you could have imagined.”
“When people associate the worth of their lives with any one activity, it’s unhealthy.”
Practice doesn’t make perfect. Practice with the clear goal of getting better every day does. Some people say that they have 10 years of experience, but they have actually repeated their first year ten times.
“There are only two types of decisions: decisions made out of fear and decisions made out of growth.”
“I still don’t like to lose. I hate it. It’s the worst feeling. But I never let a good loss go to waste. The only way to learn is to study something you never knew before. Losses are the maps that point you to what you never knew before.”
