Why The Bulls Have An Edge Over The Bears

in this week's video we'll review the latest charts to help us understand why the Bulls have an edge over the Bears we'll be moving quickly so feel free to use the pause button on your video player as you might imagine when you're managing a lot of retirement accounts from time to time you have to free up cash for normal distributions thus you have to go into your current Holdings and decide what to liquidate typically we're going to to look for a weaker position all things being equal we would prefer to keep stronger positions some of our accounts still have a small position in vaa foreign developed markets chart on your screen shows that vaa since this nice run here off the low in October of 2022 has been underperforming spy and thus on Friday morning we liquidated a small portion of vaa and account to raise cash for that distribution moral a story vaa is one of the weaker positions in our portfolio having said that in isolation during Friday's session chart of vaa looks fantastic it's making a new all-time high in the morning and it's trying to reestablish a fullbore bullish look with blue the fastest moving average on top the 20-day and black slowest moving average on the bottom prices above all the mov moving averages and the slopes are up and maybe more importantly it looks like it's breaking out of a multiple year base vaa and isolation back here in 2021 here's the bare Market in 2022 trying to break out here call that a retest that a retest and now we've printed a higher high and this on CNBC during Friday's session European stocks end August at record high after volatile start to the month that doesn't sound particularly bearish obviously there's a lot of indecisive in this chart so we want to make it clear an edge is not the same as wildly bullish still have some challenges ahead but it's very difficult to look at this chart and say the risk reward ratio is skewed to the downside all of this represents massive potential support back here if price should come back into the box and you can see the last two times price has come back into the box including early August buyers stepped in rapidly now let's go to the S&P 500 we just experienced an 8.5% correction and then we've rallied strongly off that low and if you look at the chart of leveraged loans on August 16th it successfully retraced the entire draw down here into the August 5th closing low down here we exceeded this closing High here from Late July and as we noted on Twitter on August 17th what does that say about Market participants expectations about future economic and market outcomes what does it say about their expectations for corporate profits if you believed that corporate bond defaults were about to Skyrocket and we were about to go into a horrible com buslik recession you probably wouldn't be looking to add leverag loans to your portfolio and this gives you some idea of what that ETF bkln looks like during a riskof period when we switch back to risk on and what's been happening since January 1st 2023 and you can see here see a long-term consolid ation box here and we broke out of that box in May of 2023 and as we noted a few moments ago bkn made a new closing high on August 16th has it tanked since then it has not it has pushed significantly higher and now we're well above the high here from August before the S&P 500 had the 8.5% draw down so this chart tells us to keep an open mind about the S&P 5 500 eventually going on to print a higher high and it tells us it's possible that this 8.5% 100% normal into be expected correction that occurs within the context of an existing uptrend is over during Friday's session the S&P 500 was trading above an upward sloping 20-day in blue and above an upward sloping 50-day in red also telling us to keep an open mind about the S&P 500 eventually going on to print a new all-time high RSP has already retraced the entire correction that occurred in early August and is well above the prior closing highs in July this speaks to a rally that is broadening out broader than Tech we've been told for months that that needed to happen now that it's happening it's very very difficult to twist this around and say that it's bearish because RSP has made a new all-time high before for spy it doesn't look like RSP is getting ready to lead spy we look at the anchored volume weighted average price chart line tied to the 2020 High here line tied to the 2023 low this is that important area in here in miday of 2023 all of these lines are upward sloping and the ratio of the S&P 500 to the equal weight S&P 500 still remain above those lines telling us based on what we know during the August 30th session on Friday the outperformance uptrend of spy relative to RSP remains in place and really for the long-term Trend to flip you'd have to undercut this orange line down here tied to late 2022 early 2023 last thing this ratio did was make a new high and it has not made a significant lower low lower than these lows here that's the chart in front of us is the tech heavy triple Q's the NASDAQ 100 does it look like it's giving up its leadership relative to the equal weight S&P 500 it does not how about the triple Q's the NASDAQ 100 relative to small caps still looks like an uptrend at the moment favoring the triple Q's over small caps and early in 2024 there's a lot of talk about small caps going up 50% this year but thus far the charts haven't really said that we should be loading up on small caps and that aligns with a concept that most people think the key to investing is making correct predictions none of this is about making a prediction it's about assessing odds in fact the key is making correct decisions based on the knowledge you have now let's reread that most people think the key to investing is making correct predictions but in fact the key is making correct decisions based on the knowledge you have if you're sitting there having your cup of coffee on your couch on Saturday morning this may have come to mind this is basically the same thing as trade the chart in front of you and if the chart in front of us changes then we'll have to re assess those statements and we'll have to reassess the probabilities same basic message looking at xlk the teex sector relative to the equal weight S&P 500 there's nothing on this screen here that says the outperformance in Tech that started in late 2022 early 2023 has ended this still looks like an existing uptrend If the ratio of xlk to RSP undercuts these lines here we would learn something about increasing probabilities that RSP is getting ready to lead xlk the S&P 500 Tech sector that may happen very very soon but it hasn't happened yet and if you're not a big fan of the anchored volume weighted average price lines just look at price and the ratio this two has broken above a long-term consolidation box the ratio tied to this high in 2020 when the market started to look forward think thinking that all of the money Printing and all of the unlimited QE and all of the co checks that were being sent out over and over again were eventually going to cause inflation and that's exactly what happened the ratio broke above that high had an indecisive look in here in 2023 and has been consolidating above the blue box in what appears to be a healthy manner again going back to the title where is The Edge on these charts s from a risk reward perspective Tech relative to RSP all of this back here represents potential support these lines represent an area of potential support and if you're still in an uptrend then the edge says we should favor the concept of higher highs indecisive yes a lot of indecisiveness up here and all of this comes in the context of a secular Trend a secular bull market that could last until 2034 or 2035 and our friend Dean at sentiment Trader Twitter handle here Twitter handle here ran a study this week that said a significant imbalance in volume points to a bullish outlook for stocks and if you know your stock market history and you look at this chart here and the signal dates that Dean provided it is noteworthy that every single one of the signal dates occurred within the context of of a secular Trend this in the 1950 to 1968 window these signals in the 1982 to 2000 window and the signals over here in the current bull market also notice the last signal here came in 1958 the secular Trend had a decade to run before it was over the last signal here came in 1991 the secular Trend had a decade to run before it was over if we go out 10 years where does that put us it puts us at 2034 or 2035 this is something that we've been talking about since 2018 and something that just happened this week aligns with the concept of a secular Trend and it's also noteworthy that none of these signals occurred during the periods of secular stagnation that we've talked about numerous times everything on your screen here aligns with all of this and it also aligns with the favorable demographics that we've talked about numerous times in recent years and in the previous cases 87% of the time the stock market was higher a year later the median gain 12.3% it's also helpful to know in terms of potential upside to understand the upside in the context of the secular Trend in these two historical cases last signal came on 1224 1958 the last signal in that secular Trend window and the last signal in the 1982 to 2000 secular Trend window came on August 21st 1991 thus the historical move from the date of that signal December 24th 1958 to this peak here in 1968 an additional gain of 100% if you go all the way out to the highest high in early 1973 from this point Dean signal in 1958 122% in this secular bull here from 1982 to 2000 821 1991 here again that's Dean's signal date something similar just happened in 2024 the additional gain in this secular Bull from August 21st 1991 to the peak here in March of the year 2000 was 292 per. obviously keeping this concept in mind top of your screen another study from Dean right side of the screen a bullish overbought condition in financials key takeaway when this happens in financials and it just happened what's the best performing sector historically xlk Tech what has one of the best hit rates in terms of being higher a year later xlk Tech which aligns with this chart here that we covered a few moments ago see this point back here if you've been watching these videos for some time you may remember that we became very very optimistic in miday of 2023 and all of that is documented here with these Seeking Alpha articles between May 18th and June 7th and this short takes post from June 12th 2023 over a year ago and from a sentiment perspective when the chart in front of us no predictions needed just had to trade the chart in front of you prompted us to use the word opportunity in videos in 2023 a lot of the predictions were still talking about a recession this is a prediction about the future that's a lot different than the chart in front of you the same applies today there's always predictions of gloom and doom a recession is always right around the corner the charts in front of us also helped us after the stock market bottomed following the 10% correction the second half of 2023 this is the title slide from November 3rd 2023 when most Market participants were still highly pessimistic a new day for stock market Bulls one of the slides in that November 3D video trade the chart in front of you we've got additional work to do on the secular volatility model thus the new client window is closing on September 3rd that's Tuesday of next week you can find a ton of information on our website upper right hand corner of the screen by putting your cursor on site menu this is a drop- down box including contact and faq's very very detailed FAQs and keep in mind hypothetically a good way to get started is with an old 401k that you could roll over into a rollover Ira at Schwab with no tax consequences or if you already have a rollover Ira that's over 500,000 and let's say hypothetically you have 2 million investable assets giving us one of those accounts is a great way to get started and a great way to get started before this window closes Dean's study this week and the signal dates align with all of this and after we close this window we'll be getting back to work on all of this keep in mind this window that's open for new clients is for clients that are ready to go have pretty much made a decision that they want to work with Shaco capital or are very close to making that decision we will respect your time make things as simple as POS possible we hope you do the same for us since we're using a weight of the evidence approach let's review some additional charts to see what we can learn it's a daily chart of the NASDAQ Composite this is the correction in the second half of 2023 this is price here RSI down here you can see during the counter Trend move the downtrend within the context of an existing uptrend RSI down here in the bottom of the screen had a tendency during the corrective period to stall here and to come down near this 30 line over here on the right side of your screen you can see that pattern changed when the market rallied off of that low strongly in October of 2023 this over here looks discernably different from this and you can see in 2024 when we had this little pull back here RSI down into this area here looks a little bit different from what we saw here and once it made it back above the 50 line for the most part this was over similar situation here the recent pullback RSI comes down tags this 30 line here and now we're back above 50 the longer it holds the more relevant it becomes this is also noteworthy it's a good sign when RSI comes down near 30 but doesn't have enough downward momentum to get below 30 here and here you can see stronger moves go above 70 it's the same thing in the downside this is telling us to keep an open mind about this low here the low made on Monday August 5th holding if we go back to the nasdaq's low over here lower leftand corner of your screen very late in calendar year 2022 this is when the bare market for the NASDAQ ended and we draw a very simple a non-scientific trend line you can see for the most part we held neurological area in early August we also came back to a logical area here this is volume by Price very very similar to the concepts that we look at when we look at anchored volume weighted average price lines thus far the buyers in this area in here defended the NASDAQ when it came back into this band chart on your screen dated November 9th 2023 it's the NASDAQ Composite the broad composite relative to the S&P 500 we covered this chart in November of 2023 in one of these weekly videos and it told us to keep an open mind about this relative downtrend shifting down here in favor of the NASDAQ and away from the S&P 500 turned out to be useful because the low that was made in the NASDAQ in October of 2023 held and the market rallied strongly from this point if we look at the same chart today have somewhat of a dicey in decisive look I think you can make a fair argument that this dicey indecisive look that eventually broke to the downside over here late 2021 early 2022 is very very similar to this move over here with one exception when we break to the downside here you'll notice that blue the fastest moving average is on the bottom of the stack and green the slowest moving average is on the top it's the polar opposite of what we currently have this chart is August 29th at 1:49 p.m. eastern time simply telling us to keep an open mind about the resolution still breaking to the upside also noteworthy if we take a big step back and take this chart back to 2013 and add in the 200 we moving average here in pink you can see how important all of this is and if we just look at price and we look at the prior downtrend in here that again bottomed in late 2022 and we draw a simple trend line on the same ratio the NASDAQ Composite relative to the S&P 500 you can see we currently have the three basic steps for a probabilistic trend change we break break the downward sloping trend line in here step one in this area here these lows are higher lows relative to this low and this low and then we eventually in 2024 make a discernable higher high above these highs here thus far we have not undercut this low here if we did that and we made a new closing low here that would tell us something about increasing bearish probabilities but right now this still looks similar to this up here and it still favors a move to the upside highly indecisive vulnerable you bet you a lot of volatility in the markets which passes the common sense test there's a lot of indecisiveness relative to interest rates how many times the fed's going to cut and we're getting some wild swings based on Nvidia see back here in November of 2023 we said this looked like an improving Trend look on the NASDAQ 100 on the weekly cloud and then in December of 2023 it was even better point of the exercise there's nothing on this chart of the NASDAQ 100 that says we're rolling over in fact this lagging span here tells us a lot about the strength of this trend and the fact that blue is above red tells us something about the strength of the trend and the fact that price is back above blue and red red contrast this here with q1 of 2022 when the market drops here this lagging span back here is mirroring price and notice it closes below price back here that's a yellow flag that this trend here may be rolling over and then price is below blue and red and blue drops below red all bearish indication we don't have any of that in the present day in fact we're not particularly close in the present day to having this lagging span close below price in here not making any assumptions about what this chart looks like next week but so far this looks like normal consolidation within the context of an existing uptrend and it really doesn't look much like this concerning rollover look in here where we're checking all kinds of bearish boxes in late 2021 early 22 we've covered this chart many times this is a monthly Cloud for the NASDAQ the fact that price is above blue and red blue is above red and the lagging span back here is above price that's all bullish from a longer term perspective compare this look here the bottoming process here in 2009 walking forward from this low here in 2003 and contrast it with this concerning look in here as the Market's falling in 2000 into 2001 and this concerning look in here lagging span below price when we're falling in 2008 this tells us to keep an open mind about better than expected long-term outcomes regardless of short-term volatility if this look here morphs into something more like this this and this then concerns will increase and that may happen very very soon but it hasn't happened yet we've shown this concept numerous times even when we were bouncing around here in 2024 this looked like a breakout above this box here and then a healthy consolidation on the daily chart of the NYSC composite and now we've pushed higher Above This short-term consolidation box which occurred Above This longer term consolidation box we have a fullbore bullish look with the fastest moving average the 50-day moving average on top in blue and silver the slowest moving average on the bottom pric is above all the moving averages and the slopes are up this really doesn't look anything like this rollover period here in late 2021 early 2022 also noteworthy yes the NYSC composite is doing well but on a relative basis it still has some work to do in terms of a trend flip relative to the NASDAQ 100 this is during Thursday's volatile session and you can see thus far we haven't exceeded even this High here from early August and we still have blue the fastest moving average on the bottom if this look in here starts to morph into something more like this or even like this then it's possible we're seeing a leadership flip at least in the short to intermediate term but right now this still looks like a counter Trend move within the context of existing downtrend Are we more vulnerable to a trend flip we absolutely are the ratio is up near the moving averages the moving averages are close together if this ratio makes a high above this High and a high above this high and we get a look like this in the 20-day the blue 20-day then we may have some type of meaningful leadership shift we'll see how it unfolds similar situation here we have to remember we're in a bull market and if we get too cute with leadership and relative charts and the markets higher in a year if we're overtrading between sectors and or regions of the globe or ETFs in the context of an uptrend versus trying to just hold those positions there's a chance that we will destroy value instead of creating value so when we're in an uptrend and our existing positions look healthy in isolation we absolutely care about relative Trends but all things being equal and when you're not sure leave it alone and try to hold your positions within the context of a bull market if it doesn't look like an uptrend anymore in isolation and it doesn't look like a bull market anymore then obviously that is subject to change this is is still a very positive long-term look and a breakout Above This level on the monthly nysse composite Cloud chart in isolation 2024 is similar to 2020 2012 1995 in 1991 and if you know your stock market history those are favorable periods in terms of how the market performed walking forward bottom portion of your screen is the S&P 500 Index if you know your Market history you know the S&P 500 down here bottomed in February of 2016 bottomed on Christmas Eve of 2018 this is the covid low here in 2020 and you can see in terms of NYSC new highs minus new lows cumulative this is a favorable look after the low this is a favorable look after the low favorable look after the low and this is a favorable look after this low back here this really doesn't look anything like this unfavorable look in q1 of 2022 or this unfavorable look in Q4 of 2018 or the look during the covid crash chart in front of us the data in front of us aligns with everything that we just said about not getting too cute right now patience from a probability perspective will most likely be rewarded in many if not all of our positions Looking Out 3 months 6 months 1 year to 3 years as always those statements are based on the data that we have in front of us and the charts that we have in front of us if the charts data and probabilities shift then we'll have to reassess those statements similar Concepts here all of this volatility up here for the Dow Jones Industrial Average and isolation looks healthy it's all occurring after this significant ific bullish breakout that occurred after that low here in October of 2023 and the Dow during the trading session on Thursday August 29th on the daily chart had a full bore bullish look significantly different from this look in here in early 2022 we covered this chart in April of this year and you can see that was the concept of this pullback here looks healthy because it's all occurring above above this big blue box and after this breakout when you move from here to here the market needs to consolidate its gains and typically if that's true then you would resume the existing uptrend after the period of consolidation once again you can see a fullbore bullish look of the Dow Jones Industrial Average using the 8-day moving average all the way out to the 250 day in black but on a relative basis Dow Jones Industrial Average relative to the NASDAQ Composite still has some work to do the ratio is well below a downward sloping 250-day moving average in black and during the trading session on August 29th we were below this High here that was made in Late July early August if the look over here morphs into something more like this look here in early 2022 concerns would increase in terms of leadership keep in mind the Dow Joneses Industrial Average chart in isolation looks fine the NASDAQ Composite chart in isolation is hardly overly concerning or bearish we don't want to get too cute now we're looking at a chart of the broader Dow Jones composite average we just looked at the Dow Jones Industrial Average very very similar comments here the longer a market goes sideways the bigger the move that we can expect to get when we either get a bullish breakout or bearish breakdown using the 50-day moving average in blue all the way down here to the 250-day moving average in silver this broad index has a fullbore bullish look and it also looked healthy when we covered it in February of 2024 the longer above this box down here the more meaningful it becomes and now we've been above the box without dropping below it for all of July and all of August and we have exceeded this High here and this High here back in 2023 here we covered this chart up here dated August 16th we said these short stays when you come back to an upward sloping 40 month moving average are typically bullish and they look a lot different from the hot knife through butter look here in the financial crisis the hot knife through butter look here in under year 2001 when the bus bear Market still had a long way to go can make an argument that this consolidation here a breakout Above This High here is similar to this consolidation here and the breakout here or this sideways movement in here and this breakout here if you pause your video player you can look at bearish boxes and bullish boxes Dow Jones composite average weekly is it about to tip over in a bearish manner not based on this checking all 100% of the bullish boxes on August 29th similar box look here here's your box in this area here price now is above it the longer we stay above it the more relevant it becomes you can see price up here higher than these highs over here from Q4 of 2021 we also have a similar look to the moving averages here remember earlier in the video we showed this emerging Trend look here where it look like the NASDAQ was about to resume its leadership over the S&P 500 this look in here is similar to this look in here this is a favorable look there's a however coming so should we be loading up on midcaps not yet this is the same S&P 400 midcap index relative to the standard S&P 500 large cap index it has a fullbore bearish look the 30e moving average on the bottom and the slowest moving average the 50 we in green on top prices below all the moving averages in the slopes of all the moving averages are down how about small caps this is the S&P 600 small cap index in isolation it is checking all of the bullish boxes in isolation and it too is above a consolidation box in this area here on Thursday making a lower high relative to this side which is really not that big a deal you could say that about a lot of positions on Thursday August 29th but if we look at the same S&P 600 small cap index on the exact same day August 29th it still has some work to do the ratio is below a downward sloping 200 day moving average in red now this look in here and this look in here tells us we should be open to something like this after the co low right now we had a bullish breakout look a few weeks ago and now it looks like a failed breakout a good next step for small caps relative to the S&P 500 would be to exceed this High here on a closing basis and then you'd really like to see the 200 day moving average turn up similar to this look over here we own some small caps we own large caps we're not rooting for any particular outcome we'll see how it unfolds talked about this chart many times the Dow Jones corporate bond index if Market participants believed a financial crisis a do com buslik bare Market or even a garden variety recession was right around the corner or corporate earnings were about to take a big hit then you would think rationally that Bond default rates would increase so if you thought Bond default rates were going to increase you probably wouldn't want to take the additional risk to get the additional yield that you get with a corporate bond over a safer us treasury bond but that is what investors wanted to do in here during the bottoming process 20022 2003 that is what investors wanted to do in here after the major low in March of 2009 at the end of the financial crisis bare Market and the credit markets have been consolidating for a long time now you have somewhat of a cup look in here a handle look in here now we're Above This gap down that occurred here in 2022 a good next step for corporate bonds would be to see the 200 we moving average turn back up now that may or may not happen we're in a different world in terms of inflation fed policy and interest rates than we were back here in this deflationary world but this is still a good sign and this looks discernably different from anything that we saw Looking Backward all the way into early 2022 the longer it holds the breakout the more meaningful it becomes bottom line it looks like a lean toward stronger risk on very similar Concepts here now we're looking at a daily chart with a 200 day moving average take this look here after the major low in the S&P 500 in 2009 this is 2008 here you can make an argument that this look in here is similar to this looking here where all of this consolidation has been occurring in 2024 above a now upward sloping 200 day moving average in red technical analysis is about sub shifts in human behavior during this entire period in here human beings would not allow this software index to have a weekly close above the 200 we moving average until the last two weeks Earth shattering no a discernable difference yes a discernable difference that leans toward risk on yes like anything else the longer it holds the more relevant it becomes also noteworthy if I drew a trend line down here step one we break the trend line step two this is a higher low relative to these closing lows back here and even the intraday lows if we can exceed these highs here which we've really already done on a closing basis then that would be step three if it is step three you would expect this to start moving in this direction or it a minimum hold Above This long-term consolidation box that goes back to q1 of 2022 if the breakout fails then we learn something as well in summary it's important to note again the concept of an edge is significantly different from saying we're wildly bullish there's a lot of uncertainty out there it's very very possible that the volatility could continue we've got fed policy decisions to deal with a rate cut is pretty much locked in 100% expectation for the end of September most likely it will be 25 basis points what they do after that could cause volatility because there's a lot of uncertainty in that the labor market has been slowing and we've got an election coming up having said all that the bias should still be to the upside over the next 6 months and those gains are probably going to be very very difficult to cap capure if we're overtrading or being obsessive about what's leading today you know bull market we want to stick with the longterm leaders what has the highest probability of being a leader one year from now two years from now 3 years from now we always have to remember the objective of all of this is to make money not to avoid volatility not to feel good good that's not the number one objective if we avoid volatility and feel good and lose money or don't capitalize on the opportunities in a secular Trend I'm not really sure why we're doing all this and while the charts and data in front of us including recent secular volatility and Trend strength scores say the Bulls still have an edge in the odds favor higher highs in the coming months over lower lows it's important that we head into next week and every week with that flexible unbiased and open mind the material in this video has no regard to the specific investment objectives financial situation or particular needs of any viewer this video is presented solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any Securities or any related financial instruments nor should any of its content be taken as investment advice any opinions expressed in this video are subject to change without notice and Shaco Capital Management LLC or CCM is not under any obligation to update or keep current the information contained herein CCM and its respective officers and Associates or clients may have an interest in the Securities or derivatives of any entities referred to in this material CCM accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material we recommend that you consult with a licensed and qualified professional before making any investment decision