Market Update: Prices Hit The Brakes

Q3 2019 Market Decline As July Closes

No sooner were we poised for higher highs and higher lows than the market put a halt to this in the final days of the final week of July 2019. A weekly review of the trend following ideas universe confirms the near-term decline’s impact - it’s not at Q3 into Q4 2018 levels of sentiment but it can’t be ignored.

Let’s review the Top Down summaries, the Top 20 lists and all relevant charts but we will also review some charts on other time frames to get a better feel for what just happened. I focus on weekly prices and weekly averages. I don’t focus on daily trading but I am aware many of you have different time frames and systems. This update was written with the impact of the past week, and what you likely do as traders, in mind.

There is a lot to review here. The caution light is on and the flight got bumpy but we still have to keep up the reviews and updates. Multiple time frames are the focus.

First the Top Down Summaries

First off, a top down summary of the notional Profit & Loss ("P&L") of the ideas universe.

We're still at almost 700 ideas with 55:45 balance of LONGS to SHORTS, and total gains have inched up from 215+ to 220+ K

The LONG ideas’ gains have been hit from 180K down to 150K.
The SELLS gains have bounced from 34 to 72+K.
A dozen LONGS were stopped out, and just a few SELLs stopped out.

I know these stats make no sense at all for most of you who just signed up or who are not regular room readers but the short version is: the LONGS took a hard hit and the sells/shorts have almost doubled their unrealized gains in just the past week - with most of the pain in the last couple of days of that week. Presented below is this week’s Top Down Summary and the prior week’s Summary.

The TOP 4 (of Top 20) charts, all added to the ideas universe in March 2019 as of this week are a mixed bag - the best 4 LONGS from the Top 20 over the past month.

Solar/alt.power leads (ENPH) and the top internet commerce platform (Shopify) lead.

$ENPH +220% (an updated stop that is way behind at 16.1)
$RUBI +66% (5.76 updated stop)
$SE +60% (29.6 updated stop)
$SHOP +60% (302.4 updated stop)

(Once the stops leave 50% gain in the rear view mirror, I use a trailing weekly low from the last 4 to 8 weeks. YES, these are VERY wide stops that risk giving back gains but this is only one system of many.)

The Total Top 20 LONGS list as of this week is presented below. Let’s take a moment to review it and then some relevant charts for this list. The Koyfin list version link.

These charts reveal that we should use the suggested stop loss points as the final surrender price levels for these leaders. The daily charts signal room for declines.

One last thing about the LONGS. We ALSO have laggards in the LONG ideas. They are potential sells and may become potential "shorts” as well.

Worst performing LONGS so far, down about 15-20% so far for 4 of the worst performing LONGS are

$AMRN (with a risk/share of 5.3/share, current stop is 15)
$ETSY (with risk / share of 15/share, current stop is 57.7)
$ADVM (w risk/share of 4/share, current stop is 10)

$RAD (w risk/share of 3/share, current stop is 5.8) none of them have hit their suggested stop loss prices but we can see they are getting close to it.

To repeat, time frames are at the heart of this week’s update for both longs & sells.

I wanted to share the Top 4 of the Top 20 SELL ideas. Just like with the longs, we can see which ideas led over the past month - making them leaders on the downside.

4 of the Top 20 SELLS, most added in March 2019 include the following

TWOU 60% (added week of June 7, 2019)
INGN 38%
WLL 42%
ATRA 62%

We see when something cracks, or breaks down, it can stay that way for weeks months or indefinitely. It's NOT "easy" but we can use these charts to reduce hits to our funds.

And now for the Top 20 SELLS - these are “leaders” to the downside. Koyfin link here.

The Top 20 SELLS are cautionary lessons about how bad things can be in price action.
BUT many SELLS can eventually bottom. They can become future longs.

4 under-performing SELLs (that may become future long ideas later on) with an average loss of 12-14% so far

$WAB (w a stop of 77.5, risk/sh of 10.2/sh)
$YELP (w a stop of 36.6, risk/sh of 5.1/sh)
$LIVN (w a stop of 86.2, risk/sh of 16/sh)
$ATVI (w/ a stop of 51.6, risk/sh of 8.8/sh)

Remember that stop prices for SELL ideas means that if the stock price moves UP and hits/breaks past it, then it is "stopped out" as a SELL idea.

They may or may not have "bottomed" but from experience it could take 2+ quarters or more before they end up being traded as potential LONGS.

I’m not making this up, this idea that SELLS have to be watched and could someday become new LONG ideas. MAYBE. Here are some potential LONG ideas for us to consider for Q3/Q4 2019.

4 potential LONG ideas, coming out of some ugly bottoms

$USB (4.3/sh risk, 51.2 stop price )
$FISV (9.6/sh risk, 94.7 stop price)
$DAL (5.5/sh risk, 54.6 stop price)
$SLV (1/sh risk, 14.2 stop price)

Let’s watch for some future leaders, that may go from ugly to beautiful in late 2019.

Let’s move to the top down views of various futures charts - this is a part of my review of more than just equity prices from a current 700+ trend ideas universe.

$EURUSD is ripe for a bounce near-term but it's an ugly trend so far (will the rate cuts ding the USD or will the market's near term uncertainty maintain bids for the dollar?)

$ZN_F likewise for USTs, we'll just use the 10 years trailing 5 year high: new highs.

GOLD $GC_F hits new highs on a trailing 5 year basis - not comforting but no shock.

$HG_F copper keeps getting dinged ,(NO reference to "Dr Copper", let's just look at the price); is there a tradeable near bottom for bullish traders?

Maybe but not my primary wheelhouse, I would rather save swing type trades for equities, like back in Q4 2018 when everything was being sold.

One bright note comes from a chart Sean D Emory of Avory has shared that highlights a period of potential equity bargins, at least broadly in terms of yield. No rush however.