Chief Investment Strategist
NorAm Asset Management
This is going to be a big week. As I’m writing this news is breaking out of Ukraine that could affect the markets. Also affecting the markets this week will be a slew of earnings reports from big name stocks. We also have a market holiday on Friday and monthly options expiration this week. Here’s how I plan to stay focused this week.
I’m paying attention to the news coming from Ukraine, but I’m not trading off of it. Headlines can be misleading. But what have we know for awhile – at least readers of my column have known – that the energy markets, the bond markets and gold have been firming up and actionable – long before this latest round of Ukraine news. Price and volume don’t lie. There are 197 industry sub-groups that I follow. The top 50 are dominated with energy – oil/gas groups. I’ve documented this rotation from tech to energy for about three weeks. Your leading stocks in this group continue to be CLR, EOG, SLB and FANG. Don’t chase – the easiest way to play the shift is through USO.
This week also brings economic reports that will affect the markets. The first one is at 8:30 eastern Monday – retail sales. Tuesday will bring the CPI number to bear on the market – no pun indented. Again – I can’t stress this enough – don’t guess and place bets. Let the market report it’s news and earnings and then position yourself. Always keep in mind that cash is a position – stay nimble.
This is a short week so news and action will be compressed. That means expect more volatility and several head fakes from the market. I’ll say it here first. There most likely will be a relief rally this week. Don’t get sucked in – 90% of investing and trading is psychological – you’re not missing anything if the market starts moving higher. We have a lot of resistance to work though. Relief rallies are vicious and take no prisoners. The break the backs of folks who have gotten short at the wrong time and they do the same thing to folks who get long … how so? Most relief rallies will rally to resistance and then break the backs of folks who thought the market was going up up up without them.
One caveat to this week that I think is important. The put call ratio is something that I’ve studied for a very long time. We’re now above 1.1 – this is a big deal. As this ratio climbs higher we start to reach a point of market capitulation. What do I mean? 1.1 or higher means that the market is bearish – if the entire market is bearish who is left to sell – think about it. 1.2 is typically where I get excited because when we hit this level in the ratio markets tend to find bottoms. Make sense? If not email me and I’ll delve further.
Look at the facts of the markets – headlines affect the markets, but do not trade or invest off of them. If you want to know what is working in the market and what I’m expecting from gold, oil and bonds this this week please watch this short video.
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