Two Themes Have Defined Trading In Early 2017

The major stock market indexes continue to consolidate mostly through time. Small caps are underperforming large caps, which has made chasing breakouts challenging in many occasions. We haven’t seen any strong buying pressure so far in 2017. There has been a little uptick in selling pressure, but nothing major.

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Two major trading themes have defined 2017 so far. I don’t know if this will continue to be the case in the near future:

  1. Weak U.S. Dollar, strong emerging markets. The U.S. Dollar is down 2% year-to-date. For the same period, emerging markets (EEM) are up 5.5%, Brazil (EWZ) is up 13%, China (FXI) is up 5%, gold (GLD) is up 5.6%, gold miners (GDX) are up 14%.
  2. Large-cap tech stocks are significantly outperforming. The Nasdaq 100 (QQQ) is up 4% while Russell 2000 (IWM) is down 1% year-to-date.

We have just entered a new earnings season. Thousands of companies will provide new information about the state of their business. As a result, we will see the formation of many new trends, both up and down trends. New trends mean new opportunities.

Check out my latest book: Top 10 Trading Setups – How to find them, when to trade them, how to make money with them.

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15 Things I Learned from the Book Reinvent Yourself

This is the first book I read in 2017. I thoroughly enjoyed it. Here are my favorite takeaways:

  1. We are what we experience every day:

“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.”

2. Learning never stops.

“Many people die at 25 but are not put in the coffin until 75. The learning stopped for them early.”

3. Quantity might lead to quality:

“Try many things. One thing I realized is that quantity equals quality. People think it’s one or the other but it’s not. When you have a quantity of ideas and things you are trying, you will find quality.”

4. On mentoring:

“Believe it or not, sometimes it’s just as good (often better) to read all of their materials rather than be directly mentored.”

5. On how to be creative:

“People say, “Everything has already been written.” Everything has already been said. But that’s a lie. I think every outline has already been written. But each human has a unique fingerprint. Just putting that fingerprint on an outline makes it yours, different, unique. And through practice and vulnerability, you make that fingerprint something others want to see.”

6. On how to sell:

“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.”

7. On how to find your unique niche:

“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 (because there are billions of things that can intersect, you can find your own place in the “long tail of passion” to be the master of).”

8. Ideas are not enough. Turn them into a product or a service:

“But the only thing that gets results is action. Not a single ounce of greatness in history ended with thoughts. It happened with hands. With actions.”

9. On asking the right question:

“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.”

10. On how to diversify our life:

“When people associate the worth of their lives with any one activity, it’s deadly. We have to celebrate what we’re good at. But also celebrate other things in life the love of another person. Our friends. Something funny. I always have to tell myself to diversify my celebrations. Celebrate the small. Not always the big. “Meaning” is not just a victory. Meaning is a way of life.”

11. 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.

“It’s not about 10,000 hours. It’s about 10,000 hours where you practice with intent.”

You have to constantly come up with new metrics to measure yourself, to compete against yourself, to reach beyond your last plateau.

12. A good story can open many doors:

“For 5,000 years or longer, humanity has driven forward with storytelling. Too many people forget that but the only way to really communicate effectively is through a story.”

13. On how to raise money for your startup:

Too many people say, “I have an idea. Now I need funding.” Don’t do that anymore. Stop it! Say instead, “I’m already doing this. Here are the 10 or 20 things I’ve done so far. Here are the results. Are you in?”

14. There are only two types of decisions in life. Fear of losing and fear of missing out are everywhere in life.

“There are only two types of decisions: decisions made out of fear and decisions made out of growth.”

15. Never let a good loss go to waste

“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.”

Source – Altucher, James (2017-01-05). Reinvent Yourself. Choose Yourself Media / James Altucher. Kindle Edition.

2016 from a 10,000-Foot View

SMH – Semiconductors had their best year since 2009.

KRE – Regional banks finally above their 2007 highs.

DX – Another strong year for the U.S. Dollar

IBB – first negative year for biotechs in 8 years.

EWZ – Brazil had its first positive year in the last 6.

IWM – big comeback for small caps after a 26% drawdown in late 20015/early 2016.

XIV – betting against short-term volatility worked out again.

QQQ – 8th consecutive positive year for large cap tech.

What year had the big six tech innovators? – AMZN, AAPL, GOOGL, FB, MSFT, TSLA.

Check out my newest book: Top 10 Trading Setups – How to find them, When to trade them, How to make money with them.

Market Lessons in 2016

January

The year started with a big gap down in all stock indexes and a reminder that “oversold” and “diversified” mean little during forced liquidations. Crude oil dived lower and it took all stocks with it. The 3X inverse crude oil ETF DWTI went from $200 to $400 in three weeks. The small-cap biotech ETF, XBI was absolutely obliterated and lost 38%. My most-read posts in January were: 10 Musings about market corrections and 13 More Thoughts about Bear Markets.

A few months earlier (in September 2015) I wrote a book, explaining the different stages of corrections and how to approach them: Crash – How to protect and grow capital during corrections.

February

There was a major momentum divergence in U.S. market indexes which marked the bottom in U.S. indexes. Emerging markets had already bottomed in late January. Gold and silver miners showed notable relative strength early in the month and were massive outperformers during the market recovery. Small-cap miners like CDE went from $2 to $16 in six months.

My most-read post this month was The Two Best Performing Stock Groups after a Market Correction. It was spot on.

March

You don’t have to catch the exact bottom in order to benefit from a market recovery. You can wait a few weeks to see a confirmation of a new uptrend and still do incredible well as more and more sectors join a rally.

Emerging markets began a huge rally in early March. The 3X long Brazil ETF, BRZU went from $10 to $50 in in the following six months.

My most-read posts for the month were: What happens after a 10% market correction, What overbought breadth readings mean, and The Only Time to Savely Bottom-Fish.

April

The biotech sector finally joined the bull party. Small caps started to outperform large caps.

My most-read posts for this month were: An example of a failed breakdown and Some of the Most Shorted Stocks are Setting Up for Potential Breakouts.

May

The first major pullback to a rising 50-day moving average was ferociously bought.

June

Brexit surprised the market. It led to a quick two-day crash, followed by just as quick and impressive snapback. The recovery in the large-cap tech ETF was especially striking. QQQ was at new year-to-date highs two weeks after the Brexit correction.

July

A major technical breakout in the semiconductor sector. Even if you missed the first six months of the year, July was not too late to join the market rally.

August

The market is in a good mood. Recent IPOs like ACIA are reaching for the sky. One of the most powerful setups is a hot recent IPO and a bull market.

September

Amazon reached new all-time highs, cementing its place as one of the most incredible stock market stories. $1000 invested in AMZN on its IPO day in 1997 is worth about $440,000 in 2016. The little detail is that Amazon had a 90% drawdown in 2000.

October

The biotech sector rolls over as the market fears the potential impact of a Clinton’s administration on drug regulations and prices.

November

Donald Trump wins the U.S. presidential elections. The stock market goes limit down the night of the elections. Then, it stages one of the most massive short-term rallies in its recent history. Interest rates skyrocket. Financials break out and don’t look back.

I published my newest book in November: Top 10 Trading Setups – How to find them, When to trade them, How to make money with them.

December

New lows in volatility. The inverse volatility ETF, XIV triples from its lows in February, 2016.

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137 Stocks Doubled in 2016

137 stocks more than doubled in 2016 (they are currently priced above $4 and trade over 100k share per day). Many of them belong to sectors that no one expected to see among the big winners in early 2016 – oil & gas and industrial metals. Only four out of the 137, had a good 2015 and can be labeled momentum stocks. All others are mean-reversions in beaten-down stocks. This distribution is unique for 2016. There was a major correction at the end of 2015 and the beginning of 2016 and then a major recovery. Most of the best-performing stocks after deep market corrections are the ones that got hit the worst during the correction. In most years, the best performers are equally distributed between momentum (stocks that had a great previous year) and mean-reversion (stocks that had a horrible previous year).

Basic materials: 59

Consumer goods: 7

Financial: 7

Healthcare (including biotech): 13

Industrial goods: 14

Services: 14 (mostly airlines, education svs, shipping)

Technology: 19 (mostly semiconductors like AMD and NVDA)

Utilities: 4

Here are the top 15 in term of performance:

Check out my newest book: Top 10 Trading Setups – How to find them, When to trade them, How to make money with them