From the desk of Tom Bruni @BruniCharting

Every time the stock market rallies over any significant period, we're bound to see the "most shorted stocks" chart come out of the woodwork with an ominous caption like "presented without comment" or "this is the top". Besides the fact that presented without comment is a comment in and of itself, the presenter very rarely tells us the methodology behind the chart's construction, leaving us with more questions than answers.

Last week, Tom Bruni penned a post titled Global ETF Carnage Continues, highlighting how ETFs representing stock markets around the world have been getting hurt by US Dollar strength. While he isn't yet calling a bottom, there was one particular Latin American ETF that was beginning to show signs of bottoming and it is a scenario he'd like to see replicated in more global ETFs to give him confidence the turn is coming.

The best way I know how to stay engaged in this possible turn is to have some skin in the game.

05/01/2019 UPDATE:

As a result of the labor intensive process needed to maintain the Chartbook Notes and their lack of use by the majority of members, we have decided to discontinue this feature. We will be adding new tools and functionality to replace it by the end of the quarter. In the meantime if any of the charts in the Chartbook are unclear and you need further clarification, please feel free to contact us and we'll get back to you within 24 hours. Thank you in advance for your patience as we make these improvements to the site.

Over the last few weeks we've been making several changes to the site and will be adding more stuff over the coming weeks based on your feedback. One of the changes we've made is the notes in our Chartbooks. We've received several questions on how to interpret them, so today I want to use this post to quickly walk you through just that.

One of the most valuable parts of our research process in the US is our multi-timeframe analysis of the Dow 30 components. By analyzing 30 of the largest companies in the US markets we can quickly gain an understanding of the index's underlying trend and which sectors are showing relative strength and which are showing relative weakness.

In India, we perform the same exercise with the Nifty 50 and Nifty Next 50. Over the last few months we've pointed out the weakness in mid and small-cap stocks, but more recently our analysis of the individual stocks within the large-cap indexes has started to suggest that this weakness may be spreading. Yesterday we talked about weak stocks in the Nifty 50, so today we're going to perform the same exercise with the Nifty Next 50.

From the desk of Tom Bruni @BruniCharting

Last month we wrote about short opportunities in GBP/JPY and AUD/JPY that took some time to develop, but are finally starting to work. Today we're going to focus on the US Dollar as the Dollar Index is up roughly 8% since bottoming on February 15th, and even moreso against many currencies not represented in the index. While the Dollar Index may be extended a bit in the short-term, there have been several moves that look like the start of long-term trends that we want to be a part of.

If you're like me, you think ATM charges are a crime. And one of the worst offenders is Chase, part of JP Morgan's umbrella. It's time we make them pay us back for all the ATM fees they've stolen from us for the privilege of having access to OUR money.

It just so happens, I see a great opportunity shaping up to make some high probability cash flow to replenish our bank account balances.

One of the most valuable parts of our research process in the US is our multi-timeframe analysis of the Dow 30 components. By analyzing 30 of the largest companies in the US markets we can quickly gain an understanding of the index's underlying trend and which sectors are showing relative strength and which are showing relative weakness.

In India, we perform the same exercise with the Nifty 50. Over the last few months we've pointed out the weakness in mid and small-cap stocks, but more recently our analysis of the individual stocks within the Nifty 50 has started to suggest that this weakness may be spreading to large-caps. Within this post I want to point out a few of the names in the Nifty 50 that have us concerned about the performance of the index and may even be offering opportunities on the short side.

Over the last two months the Rupee has rallied against several of the most widely traded currencies in the world, including the US Dollar, Euro, British Pound, Yen, and Australian Dollar. With that said, the Rupee's rally versus the US Dollar was short lived and the pair is now back toward 2.5-year lows, suggesting it remains vulnerable and that further weakness may be ahead.

From the desk of Tom Bruni @BruniCharting

Dollar strength has wreaked havoc on the group of ETFs that many people use to gain exposure to global equity markets. One downside of many of these ETFs is that they own the assets of the country they represent in their local currency, and since the vehicle is unhedged, changes in the exchange rate play an important role in their pricing. The Dollar Index has rallied roughly 8% since its February lows, and more dramatically against many emerging and developed market currencies not represented in the Dollar Index, which has exacerbated many of the price declines we've seen in this group of stocks.

AMD has had a tremendous run off this April's lows, where it bottomed out around $9.00. Today, it's trading north of $16. That's a greater than 75% move in about 11 weeks. Wow.

But we have some very important technical and supply-and-demand reasons to believe the move might only just be getting underway. And we want to participate, but limit our risk in doing so.

From the desk of Tom Bruni @BruniCharting

In early April I tweeted about AMD's potential breakdown from its 15-month bull-flag and its potential implications for the stock. In hindsight I'm glad I did because it's great to have this real-time example of my mindset, and the mindset of others in the marketplace, as the pattern played out. It was also a great opportunity to get constructive feedback in the comments section from many of the bulls at the time. Now that I've used my one joke per post allowance, let's move onto how the stock has performed since.

The Nifty Energy Index is hitting 2.5-month highs relative to the Nifty 500, lead by Reliance Industries Ltd. which makes up 50% of the index and is making all-time highs. With a component making up that large a percentage of the index, it's inevitable that strength, or in this case weakness, of the other holdings may be masked by the overbearing influence of one stock.

Google is making a run at a big fat round number - 1200 -- which would also be a new all-time high, and time is of the essence to get aboard what could be a rocket ship ride much, much higher. We don't have much time to waste so I'll just cut right to it.

The roughly 15% rally in the Nifty Pharma Index that's occurred over the last four weeks has a lot of people asking "was that the bottom?". In an attempt to answer that question I'll be looking not only at the index itself, but at its 10 components as well.

Before we get into that though, I think it's important to understand how this index is constructed. Despite there being 35 pharmaceutical stocks in the Nifty 500, the Nifty Pharma Index only has ten stocks in it that make up roughly 80% of the industry's market capitalization. Situations like this are why we use equal-weighted indexes to get a better idea of what stocks in this industry are doing, as only looking at the cap-weighted index which is dominated by large-caps can mask the positive or negative relative performance of its mid and small-cap companies.

But today we're talking about the cap-weighted index performance, so let's get right into it.

So JC calls me up today and drops this in my lap on Deutsche Bank $DB:

I think this is it. I think the bottom is in. Either that or it's a zero.

LOL.

More professionally, JC is quoted in Barron's:

When you talk about the fundamentals of these banks, then people get really scared, but there comes a certain point where that horribleness gets priced in.

I'm rarely, if ever, a bottom-feeder in the stock market. But knowing that $DB is just too big of a name to allow to go bust (I think regulators learned their lesson with Lehman Brothers?), it seems like a low-risk, potentially high reward play to dip our toes in the water in a risk-defined play to participate in a rebound.

Sector rotation has been a hot topic as this bull market keeps finding fresh legs to pull us higher. As we scan the entire marketplace looking for clues as to the next sector to wake up, we've identified the Home Builders as a viable option with some clearly defined levels to keep it simple.

It's time to Roll with the Homies.

Mid and small-cap stocks have been under-performing their large-cap counterparts as of late, however, it's important to remember when looking at an index that it's basket of stocks and therefore looking at each of the components can unearth great opportunities. Yesterday we did a deep dive into mid-cap stocks for long opportunities, so today we're following that up with a look for similar setups in small-caps.

Before we get into individual stocks, I want to highlight the potential failed breakdown that we're watching in the index itself. Last week prices undercut the March lows as momentum diverged positively. If we can get back above 8,040, it would confirm a failed breakdown and likely be the catalyst to push this market to new all-time highs. The individual names within this index remain mixed, so a neutral stance remains appropriate in the index itself until this range resolves itself.

...

From the desk of Tom Bruni @BruniCharting

If you've been reading this blog you've probably noticed a lot of posts about the areas of the market showing relative strength, like Technology and Consumer Discretionary, however, one industry not getting as much attention is Airlines. The reason for that is simple; the Dow Jones Transportation Index is sitting roughly 3% off all-time highs within a strong uptrend, however, Airlines continue to struggle to gain any altitude, sitting at 52-week lows on an absolute basis and crashing on a relative basis.

The chart below is daily chart of the NYSE Arca Airlines Index - $XAL. For the last 1.5 years we've made absolutely no progress and continues to chop around between 103 and 124. This chart is one we'd put in the "hot mess" category and steer clear of. While there may be opportunities on an absolute basis in individual stocks, or opportunity for range traders in the index, there's often tremendous opportunity cost sitting in markets...

Mid and small-cap stocks have been under-performing their large-cap counterparts as of late, however, it's important to remember when looking at an index that it's basket of stocks and therefore looking at each of the components can unearth great opportunities. In this month's (Premium) Members Only Conference Call we spoke about the strength in the Financial Services, Information Technology, Consumer Goods, and Energy sectors, so this is a follow-up post looking at the mid-cap stocks, many of which are in these sectors, that we want to be buying.

Before we get into individual stocks, I want to highlight the potential failed breakdown that we're watching in the index itself. Last week prices undercut the March lows as momentum diverged positively. If we can get back above 19,200, it would confirm a failed breakdown and likely be the catalyst to push this market to new all-time highs. Due to the strength we're seeing in the stocks discussed throughout this post, we think that is the higher probability outcome, but remain open-minded and have defined our...

Americans love their burgers. And customers around the world love American iconic brands. These two forces are unlikely to change in the near future, and thus sales at McDonald's restaurants around the world should continue to be strong. Of course, I couldn't care less about the fundamentals. I'm just watching price action and volatility and see a nice opportunity to profit shaping up in the options market for $MCD this summer.

Monday afternoon I was down in San Francisco, so I went by the Bloomberg West studios to do a quick hit with Catherine Murray. She asked me about the S&P500, Technology, Financials and the underperformance of Consumer Staples. We also discussed sector rotation and Crude Oil during the segment.

Here is the interview in full:

From the desk of Tom Bruni @BruniCharting

Despite the higher highs and higher lows in the major indices, all-time highs in riskier assets such as micro and small-cap stocks, and fresh breakouts in leading sectors like Technology and Consumer Discretionary, there continues to be a subset of market participants who fight this rally.

I'm a weight of the evidence guy, so I'm happy to change my mind when the data suggests it's time to, but it hasn't and that's why we've written primarily about long setups in the strongest areas of the market like Technology, (Premium Biotech), Consumer Discretionary, Retail, Restaurants,...