Notes that Float My Boat
I hope you had a Happy Thanksgiving. I did. I’m pretty lucky to have a growing family to love..and lots of dogs too. insert smiley face here. I have an old friend who lives on Kauai that I have been thinking about all week. I was fortunate to see him last summer, after many years. He is literally all alone in the world. He has no family. He lives by himself. He eats alone. But, he does go to the beach everyday and still surfs and plays volleyball all day long so there is that. That’s what he and I did everyday many moons ago when we worked nights. He just never stopped. I must call him tomorrow to say hi.
I just finished watching “echo in the canyon”, a movie about a generation of music makers who were quite busy in laid back Laurel Canyon during the 60’s and 70’s. It’s soooo good. I mean really, really good. It made me feel young again yet old(er) at the same time. The movie is all about the music I grew up listening to and all the iconic places around LA that were my playground where the music was made and played. It is literally the sights and sounds of my youth.
I spent my young teenage years skateboarding all around Laurel Canyon where Stephen Stills, Eric Clapton, Tom Petty, Jackson Browne, John Sebastian and all the others were hanging out doing their music scene thing. I drove by the round Capitol Records building everyday on my way to work with Buffalo Springfield blasting away on my 8-Track. I saw James Taylor play at the Troubadour. What a time and place to grow up. What a good movie. What good music. Looking back, all I can say is “it was groovy baby”.
Sorry, I got a little sidetracked right off the first note.
Last week was an abbreviated holiday week for trading so not too much new data but let’s see what’s going on in ye old stock marketland.
Broader Market Review
I just read an article that was bullish! Shhhh! Don’t tell anyone. Let’s keep it our little secret shall we. Well, unless they ask. They always ask. I like them asking though. That way I get to tell them exactly what I think. Go figure, I like talking about the stock market. Sure, I might be wrong, but I doubt it. It simply makes absolute sense to me for the market to rip into 2020. Human behavior doesn’t change all that much over time and that’s really what we measure when doing a deep, forensic dive into price action. We are looking for the repetition. It’s always there. Over and over and over. It’s just a little different with each instrument; like music. Once you find the rhythm you’ll start tapping your toe. Once you feel the rhythm your whole body will begin to move. Once you see the rhythm it will be like music to your eyes.
Let’s take a look at the rhythm of the Dow.
November was a nice riff up to a higher range where a slower tempo would make sense for the early part of December as scaling down from high notes is a natural harmonic phase.
The broader market is banging up against higher resistance and appears to be rolling over into the expected early December low. You can see, on the Dow ETF chart (DIA), the move up from early October appears to be running out of steam (concentrate on the thicker white line that is starting to turn over), however, price may have to touch the higher resistance level (ascending brown line) before a re-test of the ascending yellow line. DIA should get support off the still all important yellow line that acted as resistance for so long (it is now support). Longer term, into 2020, price projections remain the same; a Christmas rally off the current dip low, a larger dip late January/early February then a steeper ascent into spring. Don’t you just love spring? I plan on rolling my windows down in that old VW bus and cranking up the volume. Want to go with me?
SPDR Dow Jones Industrial Average ETF (DIA) hourly
My Other Favorite Sector
It isn’t hard to argue that the favored sector has been, is and will continue to be technology. What doesn’t involve technology? Paperclips I suppose. Semiconductors, software application and most of the rest of the group just continue to rip. If you own nothing else, own paperclips (just kidding), consider the technology sector ETF (XLK) and the semiconductor ETF (SMH).
However, as much as I believe our current banking system is doomed to massive disruption (not soon), I think financials have been overlooked and suppressed far too long. They aren’t even back to their 2007 highs. Talk about giddy up buttercup. I love the financial sector. If you want to own a basket of this sector you can buy XLF, the financial sector ETF. Here is more info.
Just look at the chart. When this thing crosses over the old highs from 2007, look out above. Banks have had 10 years to re-tool, re-tech, become more efficient and position themselves for another rip higher. The “low interest rate/banks can’t make money” argument just doesn’t work for me. They will expand with the economy and just get fueled even higher with rates rising later next year.
SPDR’s Select Sector Financial ETF (XLF) weekly
If you are interested in owning some individual financial powerhouses then check out these names:
Prudential Financial Inc (PRU), a global Fortune 500 company, has a book value of $163 and is trading in the low $90’s. It pays a 4% dividend and is aligning with an expansion channel that scales out at near $140. As soon as it crosses over the descending blue line resistance (selling pressure) it should begin to ramp higher. The chart shows the rhythm of the expansions and consolidations over the past ten years. It can’t be timed much better than this. It’s like music to my eyes.
Did someone say you can’t time the market? Hogwash!
Prudential Financial Inc (PRU) weekly
Check out this monster. Goldman Sachs Group Inc (GS), with a market cap of $80 billion and paying a dividend of $2.26% is beginning to ramp. It is currently trading in the low $220’s and is positioned to channel up to $375 before it’s next trip back down to re-test the $275 price zone. Just look at the rhythm in this long term chart.
Goldman Sachs Group Inc (GS) weekly
So many heavyweight financial names are looking to expand; Bank of America (BAC), Morgan Stanley (MS), Wells Fargo & Company (WFC) and Citigroup (C) just to name a few more.
Small Cap Financials Matter Too
Look at National Western Life Insurance Co (NWLI). It’s trading in the low $250’s and has a book value of $575. Are you kidding me? It’s a small cap that just got smacked back to long term support with it’s earnings release on November 7th. It needs to cross over resistance but when it does it should align inside its expansion channel that scales out around $390. Plus, Jim Simmons’ fund, Renaissance Technologies, owns a stake. I love Jim Simmons. I would wait for the cross on this one but put it on your radar for early 2020.
National Western Life Insurance Co (NWLI) weekly
Financials might not seem as sexy as tech but I think they are set to start slide strumming like Eric Clapton on his Cherry-Red Gibson strung with Ernie Ball’s Super Slinky’s (I remember his store in the San Fernando Valley). Yeah, just like that.
I have a lot more to say but that’s probably enough for now. If you would like me to look at anything you are interested in or wondering about just email me and I would be happy to take a look. Oh, I almost forgot, check out the new look on my website. Even after all these years, I’m still a work in progress..I hope.
Keep Rockin’,
Don
PS. This will be posted and archived on my website in a day or two. This is not investment advice.