Newsletter of Danny Merkel - Issue #129
Market Review:
The average stock in the S&P 500 fell 0.05% this week, so basically unchanged. This lack of movement continues the ongoing stalemate:
One thing that I have in common with the “raging bull-market” crowd is that the bear market is over. The above chart doesn’t represent a bear market. We all agree on that.
The difference, however, is that I believe the chart above doesn’t represent a normal bull market either.
Also, beyond the S&P 500, smaller growth stocks are acting terribly, with false breakouts happening left and right.
Without the magic of indexing, growth stocks alone remain in a long-term downtrend and appear unhealthy:
The entire raging bull-market™ since June has been completely erased. If you’re like me and you’re “in the trenches” trading each day, surely you must realize that this is an incredibly difficult market environment.
Bonds:
Although I employ zero fundamentals in my trading, it appeared to me that growth stock traders were betting on interest rates falling and a return to growth-stock trading nirvana.
Yet the bond market, which is much smarter than the stock market, was never buying into that narrative.
As I mentioned a few weeks ago, bonds are in the process of a massive breakdown:
This breakdown in bonds (and corresponding increase in rates) could be a major headwind for tech.
Individual Stocks:
Speaking of headwinds for tech, Apple gapped down last week creating a “hole in the wall” chart pattern. Based on my timeframe, the stock is on a sell signal due to the fact that the 20 day moving average has been violated:
Prior to the gap down, the thin black line did provide support (grey arrows).
Rewinding the chart to the start of the year, you may recall that I was bearish on Apple. At the time, the stock was breaking down to new 52-week-lows. Given that I’m a trend follower (and not a trend predictor), I had no choice but to be concerned.
Now the casual reader may remember that I was bearish at the time, then observe that the stock is up 50% subsequently and, from there, come to the conclusion that I must be some kind of moron.
But that’s not how this trading game works. All of my trading ideas have an exit plan. Once the stock crossed above that thin black line, I would have no problem covering the short and moving on. Flexibility is key.
But most traders don’t get this. Perhaps you’ve seen the Mark Minervini interview where he discussed Upstart. Subsequently, UPST plunged something like 80% and everybody started calling Minervini an idiot.
But that’s not how it works; he had an exit plan. There’s no way he rode that stock all the way down. That video clip was still pretty bad though.
Anyway, moving on, let’s discuss 8 new practical trading ideas going into next week.